Wani LLP v The Royal Bank of Scotland Plc [2015] EWHC 1181 (Ch)

Case No HC-2013-000423[2015] EWHC 1181 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Rolls Building,, Royal Courts of Justice, Fetter Lane, London, EC4A 1NLDate 29/04/2015
Before
MR JUSTICE HENDERSON
Between
WANI LLPClaimant(1) THE ROYAL BANK OF SCOTLAND PLCDefendants
Between
NATIONAL WESTMINSTER BANK PLC
Matthew Hardwick QC (instructed by Cooke Young & Keidan LLP) for ClaimantJohn Taylor QC and James Cutress (instructed by Matthew Arnold & Baldwin LLP) for DefendantsHearing Hearing date: 16 April 2015
Judgment

Introduction

[1]On 16 April 2015 I heard two applications by the claimant, Wani LLP, brought pursuant to an application notice issued a week earlier on 9 April. By the first application, the claimant asks for permission to make extensive amendments to its particulars of claim; by the second, the claimant asks for permission to adduce two short supplemental witness statements (to which a third was subsequently added, but without amendment of the application notice: no technical objection is taken on that point). The second application is opposed only in so far as the new evidence which the claimant wishes to adduce relates to the proposed amendments which form the subject matter of the first application. The primary focus of the hearing was therefore on the application to amend.[2]The application to amend is on any view made at a late stage. The trial of the action, with a time estimate of 5 days, is scheduled to begin in a window opening on 2 June 2015, which is about eight weeks from the date of issue of the application notice, and about seven weeks from the date of the hearing. It is therefore common ground that the application must be determined in accordance with the principles relating to late amendments laid down in cases such as Swain-Mason v Mills & Reeve LLP [2011] EWCA Civ 14, [2011] 1 WLR 2735 (“Swain-Mason”). Indeed, there was no discernible difference between the parties about the principles which have to be applied. As so often, the dispute is about the application of those principles to the facts, including in particular the prejudice which would be caused to the defendants (which are in the same corporate group, and which I will collectively call “the Bank”) if permission to amend were granted so near to the trial date.[3]I should add that, prior to the hearing, neither side had submitted that it would be necessary to adjourn the trial if permission to amend were granted. I briefly floated that possibility in the course of oral argument, because I was told that the Court of Appeal is due to hear an appeal in July 2015 in a case which (according to the claimant) underpins many of the proposed amendments, and in which the Bank is also the defendant, namely Crestsign Ltd v National Westminster Bank Plc and The Royal Bank of Scotland Plc [2014] EWHC 3043 (Ch) (“Crestsign”). In the event, however, it soon became clear that I had too little information about the precise issues in Crestsign on which permission to appeal had been granted, and their relationship to the issues in the present case, to come to a firm conclusion on the question whether, if permission to amend were granted, it would also be desirable to adjourn the trial until after the Court of Appeal had given its judgment in Crestsign. I am satisfied that, if any such application were to be made, the appropriate occasion for it would be the forthcoming pre-trial review.[4]The competing arguments were skilfully and economically presented to me by Mr Matthew Hardwick QC for the claimant, and Mr John Taylor QC (leading Mr James Cutress) for the Bank. The hearing nevertheless lasted for nearly a full day, well in excess of its sadly unrealistic two hour time estimate.

Background

[5]A company called Wanis Limited is an English company which specialises in the distribution and wholesale of international food and drink, with a particular emphasis on products originating from the Caribbean region. It is a family run business. The managing director (or, according to the proposed amendments, the business development director) of Wanis Limited is Mr Kapil Wadhwani (“Mr Wadhwani”), who is one of the three children of the founder of the business, the late Mr Tulsidas Wadhwani, and his wife (now widow) Mrs Uma Wadhwani (“Mrs Wadhwani”).[6]In about 2004 Wanis Limited was informed by the London Development Authority (“the LDA”) that its premises at Old Golden House in Hackney were to be acquired by way of compulsory purchase order because of the 2012 London Olympic Games. The company therefore needed new premises from which to operate.[7]On 9 October 2006 Mr Wadhwani and two other shareholders of Wanis Limited incorporated the claimant, Wani LLP, as a special purpose vehicle for the purpose of purchasing from the LDA a new property, to be called New Golden House, at Unit 1, Leyton Business Park, London E10, which it would then lease to Wanis Limited. Following negotiations, the claimant entered into a loan agreement with the Bank on 4 July 2007 (“the Loan Agreement”) for the purchase of the new property. The amount of the loan was £10.5 million, with a term of 10 years at the expiry of which the loan was to be repaid in full. Interest was payable at a floating rate of 0.85% per annum over the Bank’s base rate from time to time.[8]It was an express condition of the Loan Agreement that the Bank would not be obliged to make the loan available to the claimant until the claimant “ha[d] entered into an interest rate hedging instrument acceptable to the Bank at a level, for a period and for a notional amount acceptable to the Bank” (“the Hedging Condition”). Pursuant to the Hedging Condition, on 31 July 2007 the claimant entered into an amortising base rate swap with the Bank (“the Swap”). The terms of the Swap were set out in a Confirmation under an ISDA Master Agreement sent to the claimant by the Bank, following a telephone conversation on that date (“the Trade Call”) between Mr Wadhwani and Mr Dave Ramasawmy of the Bank. Under the Swap, the interest rate payable by the claimant was a fixed rate of 6.21% per annum, while the rate payable by the Bank was the weighted average of the base rate for each relevant calculation period. The notional principal amount was the full £10.5 million, subject to amortisation. The effective date was 31 July 2007, and the termination date was 31 July 2012, i.e. half way through the term of the Loan Agreement.[9]The effect of the Swap, therefore, was to protect the claimant from the risk that, over the next five years, the floating rate of interest payable under the Loan Agreement would be higher than 6.21%. In that event, the claimant would still be contractually liable to pay the interest due under the Loan Agreement, but the Bank would be obliged to refund a sum equivalent to the excess of the interest actually payable over the notional fixed interest due under the Swap. On the other hand, if interest rates fell, the claimant would be liable to pay to the Bank the difference between the interest contractually due under the Loan Agreement and the fixed interest notionally due under the Swap. It is of the essence of a fixed rate of interest that it provides protection against subsequent rises in the relevant market rate of interest, but no protection against subsequent falls in that rate.[10]A fuller description of an interest rate swap of the present type may be found in the judgment of Tomlinson LJ, with whom Richards and Hallett LJJ agreed, in Green v Royal Bank of Scotland Plc [2013] EWCA Civ 1197, [2014] Bus LR 168, at [11] to [12]. The swap in that case was executed in May 2005, with the same basic purpose of protecting the claimants against the risk of a rise in base rate during the term of the relevant loan. The claimants were experienced businessmen who carried on business in partnership buying and developing commercial property: see [7]. Echoing the judge below, Tomlinson LJ described the hedging transaction as “very straightforward”: see [7] and [11].[11]It is worth quoting what Tomlinson LJ said at the end of [11] and [12]:
“11. … It is of the essence of a fixed rate loan that a borrower is protected against increases in base rate but does not get the benefit of a decrease in base rate. Both the bank and the claimants thought at the time that it was a reasonable view that interest rates would come down in the short term and thereafter rise. Neither foresaw the market convulsions of 2008.” 12. In fact base rate remained fairly flat until about June 2006 when it started to rise significantly. Between then and October 2008 the claimants did well out of the swap. They were, as it is said, “in the money”
. But after October 2008, as interest rates fell to an all time low of 0.5% by 5 March 2009, they fared correspondingly badly. But it is necessary to bear in mind that “doing well” and “doing badly” in this context merely reflects the answer to the question whether the market movements, from whose effect the claimants were, so far as concerns the loan, now insulated, had been up or down. Through thick and thin the swap achieved its purpose of, in effect, fixing the interest rate payable under the loan.”[12]In the present case, it is clear with the benefit of hindsight that the effect of the Swap on the claimant was little short of catastrophic. The Swap had only been in place for little over a year before interest rates began their rapid downward descent to 0.5% in March 2009, and base rate has remained at that level ever since. So for most of the period of the Swap the claimant had, in effect, to pay interest at 6.21%, when the floating rate payable under the Loan Agreement would have been less than 1.5%. According to the claimant, the amount which it was eventually obliged to, and did, pay to the Bank under the Swap was no less than £2,287,430.29.

The claim as originally pleaded, and the procedural history to date

[13]The claimant alleges that it was mis-sold the Swap. The claim was issued on 19 November 2013. The particulars of claim were settled by the solicitors then acting for the claimant, LexLaw, who have extensive experience of such claims. By an early stage, leading counsel (Mr David Berkley QC) had been retained to act for the claimant. Mr Berkley has acted in several important cases of alleged mis-selling of interest rate hedging products, including Green v Royal Bank of Scotland. It is reasonable to infer that Mr Berkley was content with the particulars of claim as originally pleaded, even if he had no hand in their preparation, because he settled the claimant’s reply on 3 February 2014, and no application to amend the particulars of claim was made before the claimant parted company with LexLaw in January 2015.[14]The particulars of claim alleged that the claimant was a “private person” for the purposes of section 150 of the Financial Services and Markets Act 2000 (later replaced by section 138D). The relevance of this point is that these sections confer a right of action for breach of statutory duty on a private person who suffers loss as a result of breach by the defendant of the Conduct of Business Rules promulgated by the Financial Services Authority (“the FSA”) pursuant to the rule-making powers conferred on it by the 2000 Act.[15]The background facts were then pleaded, including the Loan Agreement, the Hedging Condition and the Swap. No reference was made to the content of the Trade Call, but reliance was placed on a presentation made by the Bank, through Mr Ramasawmy, to the claimant on or about 24 May 2007, and on certain representations and advice allegedly made and given in that presentation.[16]It was claimed that the Bank owed the claimant a fiduciary duty to act in the claimant’s best interests, on the strength of a relationship of trust and confidence between them which was said to date back to 1995. It was further pleaded that the Bank agreed to advise the claimant in connection with the Swap and interest rate hedging products generally; that it was an implied term of this agreement that the Bank would exercise reasonable care and skill in providing such advice; that the Bank assumed responsibility for the provision of such advice, as a result of which it came under a common law duty of care to exercise reasonable care and skill in so doing; and that the Bank was also under a statutory duty to comply with the FSA Rules, a breach of which would be actionable under section 150 or section 138D of the 2000 Act.[17]Breaches of these various duties were then alleged. It was said that the Swap was unsuitable for the claimant, in that it unnecessarily hedged the whole amount of the Loan Agreement, and exposed the claimant to breakage costs which were potentially enormous, unnecessary and avoidable, much greater than the costs of alternative hedging arrangements, and completely unjustified by the potential benefits of the Swap, such as they were. Paragraph 24 of the particulars further alleged that the Bank was estopped from relying upon the Hedging Condition, apparently by reason of the Bank’s failure to notify the claimant that this would be a precondition of borrowing funds under the Loan Agreement.[18]A case in misrepresentation was then pleaded, which was closely tied to the representations allegedly made in the presentation of 24 May 2007, all of which were alleged to have been false and to have induced the claimant to enter into the Swap.[19]Brief particulars of loss and damage were then given, and paragraph 32 of the particulars said:
“Properly advised, the Claimant would not have entered into the Swap. The Claimant therefore claims as damages all payments made under the terms of the Swap together with consequential losses and interest.”
[20]The Bank served its defence on 19 December 2013, and on 3 February 2014 the claimant served its reply settled by leading counsel. On 19 June 2014 the Bank made various requests for further information, to which the claimant responded on 17 July 2014.[21]For present purposes, it is important to note request 14, which referred to paragraph 32 of the particulars of claim and sought confirmation that the claimant’s case was “that it would not have entered into the Swap or any interest rate hedging product but for the alleged breaches of duty by the Bank”. If not, the claimant was asked to state what hedging product it would have entered into had the Bank not acted in breach of duty, giving particulars of the full facts and matters relied upon in support.[22]The claimant’s response to this request (“Response 14”) was as follows:
“14. The Claimant would not have entered into the Swap or any interest rate hedging product but for the breaches of duty by the Bank. The Claimant had not entered into any interest rate hedging product before the matters set out in the [particulars of claim] and furthermore, had never taken out a fixed rate product. The Claimant believed, or it was not made sufficiently clear, that the RBS Swap was a feature of the loan, and that the Swap offered by Mr Ramasawmy was required in order to get the funds. The Claimant was not told that it must have an interest rate hedging product suitable to the Bank, and thus believed it had to be the product that Mr Ramasawmy had recommended. For the avoidance of doubt, the Claimant would not have taken out any interest rate hedging product.”
[23]The claimant thus reiterated, in a response verified by a statement of truth signed by its solicitor, that its case was that it would not have entered into any other interest rate hedging product but for the alleged breaches of duty by the Bank. To the obvious objection that the Hedging Condition obliged the claimant to enter into some form of hedging product, the claimant’s answer (as confirmed by its responses to requests 1 and 2) would no doubt have been that the Bank was estopped from relying upon the Hedging Condition.[24]On 24 October 2014 the parties served their respective witness statements. The main statement served on behalf of the claimant was that of Mr Wadhwani. In paragraphs 51 to 54, he referred to the presentation which the Bank (through Mr Ramasawmy) had made to the claimant on 24 May 2007. Mr Wadhwani was unable to be present on that occasion, as he was travelling abroad on business. The claimant was therefore represented by his mother, Mrs Wadhwani, and by Mr Chandru Malkani, a family friend of long standing, with some limited financial experience, who acted as an intermediary between the claimant and the Bank. It is clear from Mr Wadhwani’s evidence that, after the meeting, the Bank followed it up with a written presentation entitled “Interest Rate Risk Management” which it sent to the claimant. The presentation gave details of various products, including an interest rate swap, an interest rate cap and an interest rate collar.[25]In paragraph 55 of his statement, Mr Wadhwani described the claimant’s reaction to this document as follows:
“55. When we were discussing the May Presentation we noted that the premium for an interest rate cap was £185,115. This seemed like a scarily large figure and we were keen on keeping our costs down. We also found the interest rate cap and the interest rate collar complex and were worried that they contained hidden costs. By contrast, the interest rate swap seemed simple. Although we saw that there was reference to a breakage cost, we did not understand the likely magnitude of the breakage cost and, due to the fact that there was also reference to a breakage gain, we did not consider these to be significant. We envisaged the breakage cost to be similar to an early repayment charge on a residential mortgage, which was the only comparable we had. Indeed, if we had been made aware of the potential magnitude of breakage costs in a falling interest rate environment, we would have been able to compare it with the premium quoted for an interest rate cap and could have made an informed decision. Had we known the likely magnitude of the breakage costs, we would have taken an interest rate cap.”
[26]The final sentence of paragraph 55 is clearly at variance with the claimant’s case, as pleaded in paragraph 32 of the particulars of claim and Response 14, to the effect that the claimant would not have entered into any interest rate hedging product but for the Bank’s breaches of duty. Nevertheless, no application to amend the claimant’s statements of case was either made, or intimated in correspondence, before LexLaw ceased to act for the claimant and were replaced by Cooke, Young & Keidan LLP (“CYK”) who came on the record on 28 January 2015.[27]Meanwhile, the claimant had on 12 December 2014 served the report of its expert witness, Mr Martin Berkeley, giving his opinion on the suitability of the Swap for the claimant. Among the concerns expressed by Mr Berkeley, one was that the Swap was “overly complex”, and “there were simpler alternatives without any of the downsides” (paragraph 3.65.1 of the report). Mr Berkeley’s opinion was that a simpler interest rate cap would have been more suitable or more appropriate for the claimant. Furthermore, the higher the level at which a cap was set, the less it would cost. For example, a cap at 6.21% (the same level as the Swap) would have cost about £197,000, according to Mr Berkeley’s calculations, whereas at 7.21% the cost would have reduced to about £58,000. Both these figures, he said, used the same parameters as the Swap, and included a fair profit for the Bank.[28]On 10 February 2015 the Bank served the report of its expert, Mr David Croft. The two experts have subsequently filed a joint memorandum on 27 March 2015, and Mr Croft has served a supplemental report on 10 April 2015. No further report has been served by Mr Berkeley, and it is not suggested that he wishes to do so. The written expert evidence is therefore complete, and it is of course based on the issues as defined in the case as currently pleaded.[29]On 18 March 2015, CYK wrote to the Bank’s solicitors, Matthew Arnold Baldwin LLP, seeking the Bank’s consent to amendment of the particulars of claim in the form of an amended draft which was enclosed. On 7 April 2015, the Bank gave its considered response, declining consent to any amendments apart from those which narrowed the existing issues. Two days later, on 9 April 2015, CYK issued the present application, supported by the witness statement of Mr Marc Keidan, the partner in CYK with overall responsibility for the case on the claimant’s behalf. The Bank’s evidence in reply is contained in the statement of Rachel Clare Falconer, a solicitor employed by Matthew Arnold Baldwin, dated 14 April 2015.[30]As I shall explain, the draft of the amended particulars of claim annexed to the application notice differs in one significant respect from the draft which was originally supplied on 18 March 2015. In addition, on 13 April 2015 the claimant unilaterally served a further document described as a “supplemental response” to request 14 in the Bank’s request for further information dated 19 June 2014. The document (“Amended Response 14”) referred to the concluding two sentences in paragraph 55 of Mr Wadhwani’s witness statement, and then said:
“For the avoidance of doubt this was intended to supersede Response 14: the Claimant’s case is that, had a proper explanation been provided, it would have taken an interest rate cap. Further, in circumstances where: (1) hedging was a condition of the Bank’s loan offer …; and (2) Mr Wadhwani was confident that it could manage the loan without worrying about interest rate movements …, the Claimant would have taken an interest rate cap for the shortest term and at the highest level (and consequently lowest premium) acceptable to the Bank in satisfaction of the hedging condition.”

The proposed amendments

[31]The proposed amendments have been settled by Mr Hardwick QC. In their original form, as sent to the Bank’s solicitors on 18 March 2015, their broad effect may be summarised as follows.[32]First, a number of contentions have been abandoned by deletion. These include the contention that the claimant is a private person; all the existing pleaded misrepresentations; the alleged estoppel in relation to the Hedging Condition; and all the alleged breaches of fiduciary and statutory duty. Unsurprisingly, the Bank does not object to any of these amendments, subject to the question of costs.[33]Secondly, the factual background is amplified and corrected in some fairly minor respects, and a much fuller account is given of the communications between the claimant and the Bank between January and July 2007. These took place on three occasions:(1) A meeting on 24 January 2007, at which Mr Ramasawmy of the Bank discussed interest rate hedging with Mr Malkani (new paragraph 9A). In the course of this meeting, Mr Ramasawmy explained the nature of various hedging products, including swaps, and explained that the breakage costs were determined by prevailing market rates. When Mr Malkani informed him that the claimant required flexibility, Mr Ramasawmy made the suggestion of an interest rate cap in order to protect against an increase in rates and to benefit from falling rates, but did not explain how the cost of the premium for a cap would compare with the potential breakage costs of a swap.(2) The meeting and subsequent written presentation on 24 May 2007 (new paragraphs 10 and 10A). On this occasion, Mr Ramasawmy again explained the nature of a swap and breakage costs, and was informed by Mr Malkani that the claimant would wish to exit any swap after five years with known or zero breakage costs. Mr Ramasawmy again suggested a cap, for an unspecified premium. Mr Malkani told him that the LDA would be paying “arrangement fees”, so the LDA would be paying for the premium if it were regarded as an arrangement fee; but Mr Ramasawmy still gave no explanation comparing the costs of the premium for a cap with the potential breakage costs of a swap. Paragraph 10A then quotes extensively from the presentation, which was sent to the claimant by email later on the same day.(3) The Trade Call on 31 July 2007 (paragraphs 11, 11A and 11B). Extensive reference is now made to the content of the Trade Call, a transcript of which has been obtained, and it is pleaded that Mr Ramasawmy made representations to the effect that the Swap provided protection without additional risk; that if the claimant decided to terminate the Swap ahead of maturity, there might be some breakage costs to pay; and that if, at the point of early termination, base rate was below 6.21%, “… chances are we will ask you to pay us … it all depends on where the market is at the time, it’s not something we can predetermine unfortunately …”.[34]Thirdly, a new legal duty is pleaded in paragraph 20(bb), as follows:
“The Bank, having undertaken to explain the nature and effect of a cap and a swap and interest rate hedging products generally, owed a duty at common law to the Claimant to take reasonable steps to do so as fully, accurately and properly as the circumstances demanded and, in particular, in order that the Claimant might make a decision on an informed basis.”
In their covering letter of 18 March 2015, CYK explained that this formulation of the common law duty was “firmly anchored” in the recent decision of the High Court in Crestsign where Mr Tim Kerr QC (sitting as a deputy judge of the High Court) had at [143] to [146] identified a duty in these terms, relying in particular on the principle stated by Mance J (as he then was) in Bankers Trust International Plc v P T Dharmala Sakti Sejahtera [1996] CLC 518 at 533D-E.[35]In that passage, Mance J said this:
“In short, a bank negotiating and contracting with another party owes in the first instance no duty to explain the nature or effect of the proposed arrangement to that other party. However, if the bank does give an explanation or tender advice, then it owes a duty to give that explanation or tender that advice fully, accurately and properly. How far that duty goes must once again depend on the precise nature of the circumstances and of the explanation or advice which is tendered.”
[36]In Crestsign, the deputy judge followed that as an accurate statement of the law, and rejected the submission of leading counsel then appearing for the Bank (Mr Andrew Mitchell QC) that a formulation of the duty in such terms was “heretical”. The critical point, as I understand it, is that although the Bank owed no duty in the first instance to explain the nature and effect of the proposed transactions to Crestsign, it chose to do so, and having made that choice it then came under a duty in the terms alleged, which went significantly further than a mere duty not to mislead. Because of the intermediate nature of such a duty, counsel for the claimant in Crestsign dubbed it a “mezzanine” duty, occupying middle ground between a full duty to advise on the one hand, and a limited duty not to mislead on the other hand.[37]Fourthly, extensive particulars are given (in new sub-paragraphs 21(aa), (bb) and (cc), running to more than two pages) of the ways in which it is alleged the Bank was negligent and/or acted in breach of contract. Thus, for example, it is pleaded in relation to an interest cap that the Bank should have taken reasonable steps to provide the claimant with information about the potential amount of the premium, to explain that the amount of the premium depended upon the level of the cap, and to explain that if the premium were paid by the LDA, the cap would provide the claimant with all of the benefits identified in the presentation without any downside. Again, in relation to the Swap, it is alleged that the Bank should have taken reasonable steps to provide information about the potential magnitude of the breakage costs, so as to provide a meaningful comparison with the cap premium. There are further allegations that, in the course of the Trade Call, the Bank failed to take reasonable steps to correct some “obvious misunderstandings” on the part of Mr Wadhwani, and that the explanation which the Bank gave him of the sums potentially payable by the claimant under the Swap was both incomplete and inaccurate.[38]Fifthly, a new case of misrepresentation is introduced in paragraphs 25 and 28. In place of the abandoned representations previously pleaded, it is now said that the Bank made express and/or implied representations regarding the Swap to the effect that:(i) it provided protection without additional risk; and(ii) if the claimant decided to terminate it ahead of maturity, at a time when base rate was below 6.21%, “potential breakage costs were modest and discretionary”. It is alleged that these representations were false, and that if the risk to the claimant had been properly explained, the claimant would not have entered into the Swap at all.[39]Finally, it is important to note that paragraph 32 of the original particulars was left unamended. Thus it was still alleged, without qualification, that, properly advised, the claimant would not have entered into the Swap. Nor was any attempt made to amend, or withdraw, Response 14. These points were drawn to the claimant’s attention when the Bank’s solicitors wrote to CYK on 7 April 2015. They argued that the case put forward by the amendments was “incoherent”, because an alleged failure to provide information in relation to caps and their premiums was irrelevant to the claimant’s pleaded case that it would not have entered into any hedging product at all.[40]In response to this objection, CYK said on 9 April 2015 that Response 14 had been overtaken by paragraph 55 of Mr Wadhwani’s witness statement and Mr Berkeley’s expert evidence that a suitable hedge would have been a cap. Amended Response 14 (see paragraph [30] above) was therefore enclosed. In addition, CYK said permission would be sought to amend paragraph 32 of the particulars of claim, so as to read (with the new text underlined):
“32. Properly advised, the Claimant would not have entered into the Swap but would instead have taken an interest rate cap for the shortest term and at the highest level (and consequently lowest premium) acceptable to the Bank in satisfaction of the [Hedging] Condition. The Claimant therefore claims as damages all payments made under the terms of the Swap together with consequential loss and interest less the cap premium.”
When the claimant’s application notice was issued on the same day, this further amendment to paragraph 32 was included in the draft for which permission was sought, but no application was made then or subsequently for permission to amend Response 14.

The relevant principles

[41]As I have already said, there is no real difference between the parties about the legal principles by reference to which the application to amend must be determined. I can therefore deal with them briefly, while emphasising that I have well in mind all the passages in the authorities to which counsel have referred me in their skeleton arguments.[42]The decision of the Court of Appeal in Swain-Mason is now so well known as not to require detailed citation. I will content myself with the following extract from the leading judgment of Lloyd LJ at [72] to [73]:
“72. As the court said [in the earlier Worldwide case in 1998, unreported], it is always a question of striking a balance … However, I do accept that the court is and should be less ready to allow a very late amendment than it used to be in former times, and that a heavy onus lies on a party seeking to make a very late amendment to justify it, as regards his own position, that of the other parties to the litigation, and that of other litigants in other cases before the court. 73. A point which also seems to me to be highly pertinent is that, if a very late amendment is to be made, it is a matter of obligation on the party amending to put forward an amended text which itself satisfies to the full the requirements of proper pleading. It should not be acceptable for the party to say that deficiencies in the pleading can be made good from the evidence to be adduced in due course, or by way of further information if requested, or as volunteered without any request. The opponent must know from the moment that the amendment is made what is the amended case that he has to meet, with as much clarity and detail as he is entitled to under the rules.”
[43]In Brown v Innovatorone Plc [2011] EWHC 3221 (Comm), unreported, Hamblen J reviewed the relevant principles at [5] to [14], in a passage which has since been widely followed by other judges at first instance, and which Nugee J has recently described as “an admirable, accurate and succinct statement of the principles”: see Bourke and Another v Favre and Another [2015] EWHC 277 (Ch), unreported, at [4]. After referring to relevant statements of principle in Worldwide and Swain-Mason, Hamblen J summarised the position as follows at [14]:
“14. As the authorities make clear, it is a question of striking a fair balance. The factors relevant to doing so cannot be exhaustively listed since much will depend on the facts of each case. However, they are likely to include: (1) the history as regards the amendment and the explanation as to why it is being made late; (2) the prejudice which will be caused to the applicant if the amendment is refused; (3) the prejudice which will be caused to the resisting party if the amendment is allowed; (4) whether the text of the amendment is satisfactory in terms of clarity and particularity.”
Both sides made detailed submissions to me by reference to these four factors.[44]There is discussion in some of the cases about a possible distinction between amendments which are very late, and those which are merely late. In several of the leading cases, including Worldwide, Swain-Mason and Innovatorone, the application to amend was made either at the start of, or during, the trial. Does it therefore make any difference if the application is made, as in the present case, some two months before the start of the trial? This question has recently been considered by the Court of Appeal in Hague Plant Ltd v Hague and Others [2014] EWCA Civ 1609, unreported, where judgment was handed down on 11 December 2014. Delivering the leading judgment, Briggs LJ (with whom Christopher Clarke and Sharp LJJ agreed) said at [33] and [34], in a passage with which I respectfully agree:
“33. … Lateness is not an absolute but a relative concept. As Mr Randall put it, a tightly focused, properly explained and fully particularised short amendment in August may not be too late, whereas as lengthy, ill-defined, unfocused and unexplained amendment proffered in the previous March may be too late. It all depends on a careful review of the nature of the proposed amendment, the quality of the explanation for its timing, and a fair appreciation of its consequences in terms of work wasted and consequential work to be done … 34. Lateness, used in this way, is a factor of almost infinitely variable weight, when striking the necessary balance in determining whether or not to permit amendments. The weight to give to this consideration in any particular instance is quintessentially a matter for the case management judge … ”
[45]Finally, the Bank submitted, and Mr Hardwick did not dispute, that the instruction of new counsel is not in itself a good explanation for a late amendment. This was a feature of the Worldwide case, where the late amendments had been prompted by a reappraisal by newly-instructed counsel of the merits of the case, but permission to amend was nevertheless refused.[46]In all applications for permission to amend, whether late or otherwise, it is also necessary to consider the merits of the proposed amendments. If they have no real prospect of success, applying the same test for this purpose as on an application for summary judgment under CPR Part 24, permission to make them must be refused.

The lateness of the proposed amendments

[47]In considering the above principles, it is convenient to begin with the first of the four factors identified in Innovatorone, namely the history with regard to the amendments and why they are made so late. In this connection, it seems to me that the claimant faces at least two obvious problems. First, the High Court in Crestsign delivered its judgment on 26 September 2014, but the application to amend was not made until nearly six months later in March 2015. Secondly, Mr Wadhwani signed his witness statement on 24 October 2014, so its content must presumably have been known to his lawyers well before that date, but again no application to amend was made following its service, and only on 9 April 2015 did the claimant belatedly plead that, properly advised, it would have taken out an interest rate cap.[48]The force of these points is in my judgment strengthened by a number of other considerations. The intermediate common law duty of explanation which the High Court identified and applied in Crestsign was not a jurisprudential novelty, even if counsel then appearing for the Bank sought to stigmatise it as heretical. On the contrary, it was firmly based on the judgment of Mance J in 1996 in the Bankers Trust case, which itself drew on the earlier decision in Cornish v Midland Bank Plc [1985] 3 All ER 513. Furthermore, the learned deputy judge in Crestsign had little difficulty in disposing of the argument that recognition of this duty was precluded by, or inconsistent with, the decision of the Court of Appeal in Green v Royal Bank of Scotland: see his judgment at [147] to [148]. The present claimant had the services of solicitors and leading counsel who were very well versed in this area of law. I can see no good reason why the intermediate duty upon which the claimant now wishes to rely could not have been pleaded from the beginning, if the facts as they were then understood to be would have justified making the allegation. This is not the kind of case, in my view, where an unheralded judicial decision changes the legal landscape in a way which could not easily have been foreseen.[49]In any event, even if the claimant could not reasonably be expected to have pleaded the intermediate duty before the judgment of the High Court in Crestsign, there is no reason why an application to amend should not have been made in (say) October or November 2014. Indeed, Mr Hardwick frankly accepted that this could and should have been done. It is possible that problems were caused by the breakdown in the relationship between the claimant and LexLaw, which Mr Keidan of CYK describes as “protracted”. Privilege has not been waived in relation to this aspect of the history, but the short answer is that, even assuming the breakdown to have hampered proper conduct of the claimant’s case, this could not in itself justify the lateness of the application.[50]The same point applies to the failure to act on the evidence contained in Mr Wadhwani’s witness statement. Unless and until an application to amend was made, so as to bring the claimant’s pleaded case into alignment with the evidence of its witnesses, the Bank was entitled to proceed on the footing that the issues remained those defined by the statements of case in their existing form. It puts matters the wrong way round, in my judgment, for the claimant to say that the Bank was now on notice of the “real” case that the claimant wished to advance. It is the function of the pleadings to define the issues, and evidence which does not go to the pleaded issues is, strictly speaking, irrelevant and liable to be struck out or disregarded accordingly. This point applies with particular force in the present case, where the question whether the claimant would have entered into some other form of hedging product was probed by the Bank in its request for further information, and the reply which was given in Response 14 was unequivocal. In my judgment no satisfactory explanation has been provided for this evidential volte face, or of the failure properly to reflect it in the first draft of the amended particulars. Nor can I see any reason why the relevant amendments should not have been formulated well before Christmas 2014.

Are the amendments formulated with sufficient clarity and particularity?

[51]This factor needs to be considered with particular reference to the principles stated by the Court of Appeal in Swain-Mason at [73], quoted in paragraph [42] above. I ask myself, therefore, whether the Bank would know, from the moment that the amendments were made, what is the amended case that it has to meet, pleaded with as much clarity and detail as the rules require.[52]The Bank submits that the answer to this question is No. The Bank says that it would require further information in order to gain a proper understanding of the proposed amendments, and that it does not yet know precisely what case it has to answer. The Bank’s submissions are focused on two aspects of the amendments: first, the cap which the claimant now alleges it would have entered into; and secondly, the allegation that the Bank should have explained that, if the premium for the cap were paid by the LDA, there would be no disadvantages to the claimant. I will consider these two points in turn.[53]As I have already explained, in their letter of 7 April 2015 the Bank’s solicitors complained of the incoherence of the claimant’s new case at a time when paragraph 32 of the particulars, and Response 14, remained in their original form. They then said:
“Further, if your client did intend to allege that it would have entered into a cap, this would of course have to be clearly pleaded, including as to the precise notional amount, duration, strike rate and alleged premium of such cap. It would then raise very serious factual issues as to (i) whether your clients would have entered into a cap in light of the documents and evidence concerning its aversion to paying any premium and (ii) whether such a cap would be acceptable to the Bank, having regard to the requirements of its credit department and (iii) as to what the correct premium figures would have been.”
No such particulars were given, however, in the claimant’s revised draft on 9 April. The revised version of paragraph 32 merely said that, properly advised, the claimant “would instead have taken an interest rate cap for the shortest term and at the highest level (and consequently lowest premium) acceptable to the Bank” in satisfaction of the Hedging Condition.[54]The Bank complains, in my judgment with justification, that this pleading is embarrassing, because it does not spell out the terms of a cap into which the claimant would willingly have entered, nor does it allege that such a cap would have been acceptable to the Bank. Instead, the wording of the allegation effectively invites the Bank to state the terms and minimum price of a cap which it would have found acceptable. As such, it is in my view tantamount to a request for further information, which would require the Bank to carry out a good deal of work before responding to it. Nor is the allegation free from uncertainty and ambiguity. It appears to invite an enquiry about what the Bank’s “bottom line” would have been, if pressed in negotiations, but it is far from obvious that the claimant would have been in a position to negotiate a deal on those terms. It is far more probable that agreement would have been reached on the terms and price of a cap which were more favourable to the Bank than its bottom line. But in that case the claimant needs to spell out, with clarity and precision, the terms that it would have been prepared to accept, and to allege that such terms would also have been acceptable to the Bank.[55]I am encouraged to take this view by Ms Falconer’s evidence that, in other cases of alleged mis-selling of interest hedging products, the court has required the claimant at an early stage of the proceedings to give precise details of the alternative product into which it claims it would have entered. She refers by way of example to an order made by Males J at a case management conference, held before disclosure had taken place, on 16 May 2014 in a case in the Commercial Court, Freehold Estates Ltd and Others v National Westminster Bank Plc and Royal Bank of Scotland Plc, Claim no: 2013 Folio 68. The claimants were then directed to serve particulars of the interest rate caps into which they alleged they would have entered “including the date, notional amount, duration, strike rate and premiums of each of the caps”. I enquired during the hearing whether the loan agreements in that case contained a term equivalent to the Hedging Condition. Mr Taylor QC for the Bank did not have the answer immediately to hand, but in a letter sent to me shortly after the conclusion of the hearing he confirmed that this was the case.[56]Furthermore, it is not as if the claimant lacks the material to formulate the terms and price of a cap into which it would have been willing to enter on 31 July 2007. Apart from material contained in the report of the claimant’s own expert, Mr Berkeley, the principal witness of fact for the Bank, Mr Ramasawmy, had given some evidence on this topic in paragraph 41 of his witness statement dated 23 October 2014, quoting some figures obtained from the Bank.[57]The claimant’s answer to all these points is to stress that, pursuant to the Hedging Condition, the terms of the cap had to be such as were acceptable to the Bank. Mr Hardwick suggested that the Bank would have little, if any, difficulty in stating the minimum terms which would have been acceptable to it, given its involvement in a multitude of cases involving the alleged mis-selling of interest hedging products over the last few years. He invited me to take a sceptical view of the Bank’s protestations to the contrary. There may be some truth in this, but in my judgment the claimant is asking the court to indulge in speculation when the onus lies squarely on the claimant to formulate its case with clarity and precision. Those qualities are in my judgment conspicuously absent from the proposed amendments to paragraph 32, and the position is made still worse by the fact that this crucial amendment appeared for the first time on 9 April 2015.[58]I now turn to the allegation concerning the LDA and the possibility that it might have been obliged to pay the premium for a suitable interest cap. In their letter of 7 April 2015, the Bank’s solicitors said this about the allegation:
“In addition to the above, para 21(aa) is unsatisfactory in that it is unclear whether your client actually alleges that the LDA would have paid the cap premium. The allegation made is that the Bank should have explained that “if” the LDA had paid the cap premium, it would provide only benefits. However, if the LDA would not in fact have paid the cap premium, the allegation goes nowhere. Conversely, if your client alleges that the LDA would have paid the cap premium, that gives rise to a whole new area of disclosure, factual investigation and potential witness evidence, which our client cannot be expected to have to consider and/or undertake at this late stage.”
[59]In my view the Bank was justified in adopting this position. If it is now to be alleged that the advice given by the Bank should have taken account of the possibility that the premium would be paid by the LDA, it is incumbent on the claimant to establish that this was a real possibility. For that purpose, it would be necessary for the claimant to give disclosure of the documents which govern, or relate to, its contractual relationship with the LDA, none of which have so far been disclosed. In addition, the Bank would need time to make its own enquiries, and it might well be necessary for further witness evidence to be adduced on either side. The hypothetical way in which the claimant now wishes to plead the possibility is in my judgment embarrassing, for the reasons given by the Bank’s solicitors in their letter and as amplified in the Bank’s written and oral submissions. What the claimant cannot reasonably do, in my opinion, is bring the point into the arena on a purely hypothetical basis, and then submit that no further enquiry into it is justified.[60]I should add that the position is not improved by a supplemental statement from Mr Wadhwani which CYK sent to the Bank, in draft, on 14 April, only one clear day before the hearing. In this statement Mr Wadhwani says that the question of the LDA paying the cap premium was never explored with the LDA following the meeting with the Bank on 24 May 2007, or at any other time. He then says that the LDA had agreed to pay the claimant its reasonable and proper costs and disbursements arising out of the compulsory acquisition of Old Golden House and the purchase of New Golden House, and that in practice such costs and disbursements were first incurred by the claimant and then recovered from the LDA. Mr Wadhwani provides no details, however, of the date and manner in which this agreement was reached, and provides no documentary support for it. His proposed evidence therefore positively invites a further train of investigation and enquiry, at a time when the trial is only a few weeks away.[61]I conclude that both of the Bank’s main objections under this heading have real substance, and that in these significant respects the proposed amendments do not satisfy the stringent requirements laid down by the Court of Appeal in Swain-Mason.

Prejudice to the Bank

[62]The prejudice that would be caused to the Bank, if the disputed amendments were allowed, is to a considerable extent linked with the factors which I have already examined. In view of the lateness of the amendments, and the significant failures to formulate them with appropriate clarity and particularity, the Bank would in my judgment be forced to investigate and respond to the claimant’s new case under great pressure, at a time when it should be able to concentrate its time, resources and energy on preparing for the forthcoming trial in June. This is not a burden which any litigant (however well-resourced) should normally be compelled to undertake, and which orderly pre-trial directions are carefully designed to avoid. In the present case, the main directions for disclosure, exchange of witness statements of fact, and expert evidence were given at case management conferences before Master Teverson on 9 April and 2 June 2014. In accordance with those directions, as subsequently varied by agreement in comparatively minor respects, the case in its existing form is now ready for trial at the allocated time.[63]From the Bank’s perspective, this satisfactory state of affairs would be subject to severe disruption if the amendments were allowed. I accept the Bank’s submission that proper consideration of the new claim would require substantial further investigations to be undertaken, as well as further disclosure and further evidence. The following examples, all of which seem to me well-founded, are largely taken from the Bank’s skeleton argument:(1) The Bank would need to investigate whether it really was “possible”, or at any rate believed by the claimant to be possible, that the LDA would have paid for a cap. This investigation would require disclosure by the claimant of its agreement and relevant communications with the LDA. The Bank might also need to seek third party disclosure from the LDA, depending on the disclosure which was obtainable from the claimant. It may be relevant in this connection that much of the claimant’s existing disclosure has been relatively scanty, apparently because of difficulties with computers.(2) It is implicit in the claimant’s new case that it would have been able to pay the premium for a cap itself, if it was not reimbursed by the LDA. However, the claimant has not yet said how it would have funded the premium, even though it was a special purpose vehicle with no trading history or other assets. The answer may well be that Wanis Limited could, and would, have provided the necessary funding, but the Bank is clearly entitled to investigate the question and further disclosure and evidence on the point might well be required.(3) The Bank would also need to investigate internally what cap would have been acceptable to it, and whether it would have been approved by the Bank’s credit department which had to approve the lending. According to Ms Falconer’s evidence, the relevant people who provided the credit sanction at the relevant time were a Mr Northover and his superior, Mr Godby. Neither of those gentlemen is currently a witness, and Mr Godby retired from the Bank in 2012.(4) In response to the alleged Crestsign information duty, the Bank would wish to rely on clause 4.6 of its Terms of Business, which said that:
“Any information we have provided to you relating to trades is believed to be reliable, but no representation is made or warranty given or liability accepted, as to its completeness or accuracy.”
If, as is probable, the claimant would then rely upon the Unfair Contract Terms Act 1977, the Bank would then wish to allege that this clause satisfied the requirement of reasonableness under the 1977 Act. This would in turn raise another area of investigation, and might necessitate further factual and/or expert evidence in relation to the guidelines for reasonableness contained in schedule 2 to the Act. (5) More generally, the claimant’s new case in relation to the provision of information about breakage costs under a swap and the premiums payable for interest caps would also have to be investigated with Mr Ramasawmy and Mr Berkeley, and the Bank might well wish to adduce further evidence from either or both of them.[64]The Bank says, and I agree, that it would be unfair and unrealistic to expect the Bank to deal with all these matters in the few weeks remaining before trial. I am quite unable to accept the claimant’s submission that, if permission to amend were granted, the only consequential steps which would need to be taken would be amendments to the defence and the reply. The claimant’s new case is extensive and far-reaching, quite apart from the fact that it appears to rest on an evidential basis radically different from that which presumably underpinned the claim in its original form. The Bank cannot reasonably be criticised for wishing to subject it to a careful and probing scrutiny. Had the amendments been made six months ago, this might have been possible without undue prejudice to the Bank. At this late stage, however, I am satisfied that the prejudice alleged by the Bank is real and substantial, and should not be dismissed as mere bluff.

Prejudice to the claimant

[65]That there will be prejudice to the claimant if permission to amend is refused is obvious, in the sense that the claimant would be unable to pursue its new contentions and would be confined to arguing the case on those of the existing grounds which it has not abandoned. On the other hand, this is not a case where the claimant would be left without any realistic claim to pursue. The Bank would still have to answer the existing claims based on breach of contract and negligence at common law. Furthermore, the prejudice to the claimant is largely of its own making, because (viewed objectively) there is no good reason why the application to amend should not have been made in October or November 2014, when my provisional view is that it would have had reasonable prospects of success. Litigants who leave a substantial application to amend until a late stage cannot reasonably complain, in my judgment, if the undoubted prejudice to them caused by refusal of the application is found to be outweighed by the other factors which the court has to take into account. The present case, in my view, is one of that kind.

The merits of the proposed amendments

[66]The Bank submitted that several of the proposed amendments failed to satisfy the basic test of having a reasonable prospect of success. I do not find it necessary to examine this part of the argument in any detail. It is enough to say that, although the proposed amendments, if allowed, would provide fertile material for vigorous cross-examination of the claimant’s witnesses, and although the claimant might have difficulty in explaining the evidential volte face on which I have commented, I am not satisfied that any of the proposed amendments is so obviously unsustainable on the facts as to justify refusal of permission on this ground alone. In particular, I am satisfied, all other things being equal, that the proposed Crestsign duty of explanation could properly be pleaded, and that a sufficient factual basis for it may be found in Mr Wadhwani’s witness statement.

Conclusion

[67]As I have already indicated, I consider that this is a case where the balance comes down firmly in favour of refusing permission for the disputed amendments. The application is made too late, there are significant respects in which the amendments are formulated with insufficient clarity and particularity, and the Bank would face real and substantial prejudice if it had to consider and respond to them in the short period between now and the forthcoming trial. As against that, the prejudice to the claimant is largely self-inflicted.[68]In the light of this judgment, I hope that the parties will now be able to reach agreement on precisely which amendments should be permitted, and which parts of the proposed further evidence the claimant should be permitted to adduce. Any remaining points of disagreement can be dealt with when this judgment is handed down.

Cited in 17 later judgments

and 8 more of the most senior