National Westminster Bank v Frankham [2013] EWHC 1199 (QB)

Case No HQ10X04029Case No QB/2012/0547[2013] EWHC 1199 (QB)IN THE HIGH COURT OF JUSTICEQUEEN'S BENCH DIVISIONON APPEAL FROM THE ORDER OFMASTER LESLIE DATED 3 OCTOBER 2012Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 10 May 2013
Before
SIR RAYMOND JACK SITTING AS A JUDGE OF THE HIGH COURT
Between
NATIONAL WESTMINSTER BANKClaimantJUNE FRANKHAMDefendant
Mr Clive Freedman Q.C (instructed by Boardmans) for Appellant/DefendantJames Barnard (instructed by Isadore Goldman) for Respondent/ClaimantHearing Hearing dates: 17 and 18 April 2013
JudgmentSIR RAYMOND JACK :Introduction
[1]This is an appeal from the order of Master Leslie made on 3 October 2012 whereby he refused permission to the appellant, Miss June Frankham to amend her defence and counterclaim in an action brought against her by the National Westminster Bank to recover moneys lent. The master also ordered that her existing defence and counterclaim be struck out and that there be judgment for the bank for £1,611,561.23.[2]The master refused permission to appeal. On 8 January 2013 Globe J ordered that there should be an oral hearing of the application for permission to be followed by the hearing of the appeal if permission be granted. At the conclusion of submissions on behalf of Miss Frankham by Mr Clive Freedman QC I stated that permission would be granted, and I then heard submissions by Mr James Barnard on behalf of the bank.[3]Miss Frankham is the owner by inheritance of land in Suffolk consisting of a house and a large garden. In 2005 she obtained planning permission to build four houses on the land, which once built she intended to sell. That would have left her with some garden around the family house and some further land which might be developed later. In June of that year she had a meeting with the bank and the outcome was that the bank agreed to finance the building of the four houses. Miss Frankham alleges that the bank also undertook obligations in connection with the supervision of the development. Miss Frankham entered a contract for the work with a company named My Home Is My Castle Limited, which I will call ‘My Home’. My Home commenced the work and made substantial progress. Miss Frankham alleges that the bank involved itself in the supervision of the work. In late March or early April 2006 My Home ceased work and left. It is Miss Frankham’s case that the company was operated as an instrument of fraud. The fraud was that payment would be obtained in advance of work being done and be followed by abandonment. Miss Frankham was left in difficulties. From about April 2006 onward she was seeking alternative finance and at some point her solicitor told the bank that it faced a claim for the mishandling of the development thus far. On about 17 July there was a meeting at Miss Frankham’s home with the bank. Miss Frankham alleges that she was told, if she stayed with the bank, the bank would “sort the whole thing out”. The outcome was that the bank loaned further monies. The development was eventually completed, but the property market had collapsed and the houses could not be sold at acceptable prices. They and the main house are now rented when Miss Frankham can find tenants, while she and her partner live in a mobile home. The bank commenced proceedings on 22 October 2010. The bank has a charge over the land but has taken no steps to enforce it, perhaps thinking that until its dispute with Miss Frankham is resolved enforcement proceedings would be ineffective.[4]Put very shortly Miss Frankham’s defence is that the bank took over the management of the development and that it has caused her loss which can be set off in extinguishment of the loans. The case is thus one of those where it is alleged that a bank has ceased to be simply a lender but has taken on responsibilities in connection with the matter which it was to fund. The appeal is concerned with whether, on the basis of the material before the court, that case has, or has not, a real prospect of success in whole or in part.

The proceedings

[5]The bank’s particulars of claim dated 21 October 2010 were straightforward. £511,302 was claimed under a first loan account, £940,281 under a second loan account, and £68,104 under a third loan account. Demands were made on 16 September 2009.[6]Miss Frankham’s defence and counterclaim was served on 17 December 2010. It was drafted by her solicitor. In paragraph 2 it was denied that the sums claimed were due, and it was further alleged that the bank was not entitled to make demands, or was estopped from making demands. Paragraph 3 described the development. Paragraph 4 referred to the borrowing and asserted that it was pursuant to “the Loan Agreement”. Paragraph 5 set out a number of terms of the Loan Agreement said to be implied to give business efficacy to it. The terms which are particularly relevant to the defence are as follows: by sub-paragraph (i) that the bank should proceed as a competent professional banker supporting its customers in accordance with the representations given in its marketing and public announcements and its direct representations to Miss Frankham which induced her to enter the Loan Agreement; by sub-paragraph (iii) that the bank should not interfere with the development and take it over or exceed its role as banker; by sub-paragraphs (iv) and (v) that the bank should not impede Miss Frankham from constructing the development on time and to budget, by sub-paragraph (vi) that the bank would not make unauthorised payments to the contractor; by sub-paragraphs (vii) and (viii) that the bank would not dishonour cheques or suspend credit; by sub-paragraph (ix) and (x) that the bank would not give instructions to My Home, or countermand Miss Frankham’s instructions, by sub-paragraph (xii) that the bank would not pay My Home for work which had not been done contrary to her instructions, and by sub-paragraph (xiii) that the bank would not fail to provide Miss Frankham with funding, advice or assistance and commence proceedings before she could sell the houses.[7]Paragraph 6 began ‘Negligently and in breach of the express and/or implied terms of the Loan Agreement the Claimant by its managers, including in particular one Gary Gingell’. I will use the correct spelling, Gyngell. Then followed 18 sub-paragraphs. The main allegations are: that the bank repeatedly countermanded Miss Frankham’s instructions relating to the development; that the bank made unauthorised payments to My Home; that the bank declined to meet authorised payments; that the bank held private meetings with My Home to discuss and plan the development without the knowledge or consent of Miss Frankham; that the bank countermanded Miss Frankham’s instructions and instructed My Home to build a house in the wrong location with serious adverse consequences; that the bank made payments for work which had not been done and for materials which had not been brought to site; that the bank instructed a firm of surveyors who purported to instruct My Home and instructed payments against Miss Frankham’s instructions; that Mr Gyngell told Miss Frankham that he “owned” the development; that the bank generally took control of the development as if the bank and Mr Gyngell were the developer; that the bank failed to honour cheques and also suspended Miss Frankham’s funding for over a year; by sub-paragraph (xiv) that the bank: “‘provided the Defendant with no support or assistance, in particular the support and advice of a business manager, which the Claimant had offered as part of the services it misrepresented to the Defendant that it would provide in order to induce her to enter into the Loan Agreement.” and lastly that the bank commenced the proceedings without giving Miss Frankham opportunity to sell the houses.[8]Paragraph 7 alleged that by reason of the bank’s misrepresentation, breaches of contract, interference with contractual relations and/or negligence Miss Frankham was not able to complete the development to programme or budget, that it was put over into the housing market slump and not completed until 2010. Paragraph 8 pleaded loss as being the reduction in the value of the houses, the increased cost of building them and the increase in borrowing. No figures were given.[9]Paragraph 9 asserted that on various occasions the bank had told her that it would “sit down with her and discuss” a resolution before taking any enforcement action, and paragraph 10 asserted that in reliance on this Miss Frankham proceeded with the development. Paragraph 11 asserted that the bank was estopped from reneging on that promise by taking enforcement action.[10]The counterclaim repeated the defence and asserted that Miss Frankham had suffered and was suffering loss. Damages for misrepresentation, breach of contract, interference with contractual relations and/or negligence were claimed. No figures were given.[11]The defence and counterclaim was verified by a statement of truth signed by Miss Frankham’s solicitor in these terms “The facts stated in this Defence and Part 20 Counterclaim are true. I am authorised by the Defendant/Part 20 Claimant to sign this statement.” CPR 22.1(4) provides that a statement of truth is a statement that the party putting forward the document “believes that the facts stated in it are true.” CPR 22.1 provides that a statement of case may be signed by the party’s legal representative on behalf of the party. The statement here was not precisely in the form stated in the rule, but itdoes amount to a statement that the facts are true, and that the solicitor was authorised by Miss Frankham to say so. It was submitted for the bank that the statement was not a statement of truth and should be ignored. I reject that.[12]The next event was that on 21 February 2011 a stay was ordered between 25 February and 8 April to see if a settlement might be reached. On 8 April the bank served a request for further information. On 14 April the case came before Master Leslie for directions. He ordered that Miss Frankham should provide such further information as she contended the bank was entitled to, verified by a statement of truth, by 28 April. He ordered that the action should be stayed from the date the information was provided until 17 June for ADR. He ordered that the bank should, if so advised, serve an application for summary judgment or to strike out all or parts of Miss Frankham’s defence and counterclaim by 15 July, with supporting evidence. He then gave directions as to what should be done if there was no such application.[13]Miss Frankham’s answers to the request for further information prepared by counsel were served on 9 May, 11 days late. It was said that the loan agreement referred to in the defence was the three loan agreements relied on by the bank. It was said that the direct representations pleaded in paragraph 5(i) of the defence were given by Mr Craig Muttley (correctly Muckley) who said he was experienced in this sort of property development and he ‘would be able generally to give her the necessary support and advice in the course of the project’. In answer to a request as to how it was said that the bank had impeded the development (answer 6), it was said that this would be dealt with in witness statements and cross-examination (not a proper response) but that Mr Gyngell instructed My Home to build a house in the wrong place, and fresh planning permission had to be obtained causing delay, that he instructed My Home to start internal plastering before the roofs were on, and that he instructed Miss Frankham to pay £5,000 to My Home for substandard bricks. No proper answer was given to a request as to how the bank increased Miss Frankham’s borrowings without her authority. In answer to a request as to instructions to builders, answer 6 was relied on. It was said that the bank had interfered with Miss Frankham’s business relationships by dishonouring cheques when funds were available in her account so she was refused credit: but no cheques were identified. As to paying My Home for work and materials which had not been provided, it was said that Mr Gyngell gave such instructions, perhaps on the negligent advice of the surveyors, Gleeds, resulting in several hundred thousand pounds being overpaid, and that Miss Frankham employed a surveyor who said that there had been large overpayments. As to why it was said that the bank could not recover its loans in after the repayment dates in the loan agreements, it was said that the case was adequately pleaded – an inadequate answer.[14]Request 12 asked in respect of ‘negligently’ in paragraph 6 of the defence to provide particulars of the duty of care. This was answered by saying the case was adequately pleaded and that:
“The claimant owed a duty to act with reasonable skill, care and diligence in carrying out its duties as the defendant’s banker in addition to its duties under the loan agreements. Full details of negligence will be provided on disclosure and in witness statements.”
This does not purport to add anything to the ordinary limited duties of a lending banker. As to the last sentence, it is the duty of a litigant to give in the statement of case the best particulars of negligence that can be given. They may be added to after disclosure. It should never be the position that they have to be dug out from a witness statement.[15]The answers did not otherwise add to what was in the defence, and many requests were not properly answered at all. It must be borne in mind that a pleader may be limited by the instructions which he has, or perhaps the lack of instructions.[16]Contrary to the master’s order the further information was not verified by a statement of truth signed by Miss Frankham.[17]The proceedings were again stayed for the purpose of settlement between 17 June and 3 October 2011. On 13 October the bank issued an application under CPR 3.4(2)(a) to strike out the defence and counterclaim. CPR 3.4(2)(a) provides that a statement of case may be struck out if it appears to the court “that the statement of case discloses no reasonable grounds for bringing or defending the claim.” There was no alternative application under CPR 24 for summary judgment, where the test is whether the “defendant has no real prospect of successfully defending the claim”.[18]The further information was re-served with a statement of truth signed by Miss Frankham on 21 October 2011.[19]The application to strike out the defence was due to be heard on 29 November 2011 but was adjourned at Miss Frankham’s request to 7 February 2012, from which it was again adjourned at her request to 15 March. A further adjournment was refused. No evidence was filed on behalf of either side. The submissions of the bank were that the defence raised no arguable defence to the claim and in particular provided no basis for establishing any duty of care on the part of the bank. In his judgment the master said that the pleading was inconsistent with itself and must be struck out. He said that there was no basis pleaded on which the alleged implied terms might be implied. He also referred to the possibility of an averment that there was some other contract with the bank beside the loan agreements, which Miss Frankham might say had been broken and caused her loss: paragraph 5. In paragraph 8 he said:
“The court is therefore left with two alternatives: strike out this defence, let the claimant enter judgment, and then what happens? I do not think that that would be in the interests of justice … . I think that what is alleged by Miss Frankham, if correct, may amount to a valid counterclaim against the bank and, arising out of the same relationship as it does, and a good argument, for a set off. …. What I think should be done is that Miss Frankham should be given one last chance to put her case in order, to have it coherently and consistently pleaded, after proper and rigorous examination of the legal principles involved, which I think has been absent from her case to date, and I cite to that extent the defence and counterclaim”
. The master thus recognized the possibility that Miss Frankham might plead an agreement under which the bank undertook duties beyond that of a mere lender, and he no doubt had in mind the allegations made by Miss Frankham as to what the bank had actually done. He ordered that a draft amended defence and counterclaim was to be served by 13 April 2012, and that there should be a further case management conference on 2 May. He awarded costs against Miss Frankham in the sum of £2,000.[20]The new draft pleading was served outside court on 2 May 2012. It was intended to stand in substitution for the old. The draft indicated that a statement of truth was intended, but there was none. In consequence the hearing on 2 May was adjourned to 15 June, and Miss Frankham was ordered to serve a witness statement explaining the delay and stating her means and assets so the court might consider a payment into court. No point was raised at this stage as to the lack of a statement of truth.[21]Miss Frankham’s witness statement was dated 29 May. Her explanation for the delay was that she had needed money to pay counsel, that counsel had asked for further documents, and that he had then been engaged on another matter. It revealed that her main income was from the letting of the houses and her home.[22]On 8 June 2012 the bank’s solicitors wrote saying that they would not consent to the amendment – which they had not considered until 6 June, and that Miss Frankham must apply for permission. They said that Miss Frankham must demonstrate that it had some prospects of success. On 12 June Miss Frankham issued an application for an extension of time in which to have served the draft amended defence, and for permission to amend. On the same day the bank’s solicitors stated in a letter: “Your client needs to support her application for permission to amend with evidence, in order to demonstrate that the proposed amendments have some prospect of success. See: White Book Para 17.3.4”.[23]On 15 June 2012 the case came before Master Leslie for consideration of Miss Frankham’s amended defence and counterclaim and the case management conference adjourned from 2 May. The hearing was adjourned to 2 October at the request of Miss Frankham.[24]On 2 October the master had before him the draft pleading, a statement by Mr Keuchel made on behalf of the bank on 13 July 2012 and a witness statement made on 17 August by Miss Frankham in answer to that.[25]The draft amended defence was intended to stand in substitution for the original. It included the following: Paragraph 5. In June 2005 Mr Muckley of the bank discussed the funding of the development with Miss Frankham at a meeting. He knew her and that she was inexperienced. Paragraph 6. To induce her to enter into a loan contract Mr Muckley represented that he was experienced in property development of the kind in question, that he would personally assist her and facilitate her banking needs to take the project to completion, and that “he would give her all other necessary support and advice throughout the project.” Paragraph 7. Further, as evidenced by a letter of 15 June 2005 Mr Muckley assumed responsibility for providing financial and management assistance and advice in relation to the development, and instructed her to obtain quotations from two builders whom he recommended. Paragraph 8. In reliance on Mr Muckley’s representations and promises of assistance Miss Frankham entered a loan agreement with the bank on 10 October 2005 for finance up to £675,000. This was refinanced on various occasions resulting in a loan agreement of 22 November 2007. Paragraph 9. Contrary to his representations Mr Muckley gave no assistance but Mr Gyngell was appointed Miss Frankham’s bank manager, and he purported to manage the project on her behalf as set out in paragraph 11. Paragraph 10 pleaded the contract with My Home dated 21 December 2005 and that it provided for a fixed price to be payable in instalments upon completion of specified stages of the work. Paragraph 11. From January to late March 2006 the bank by Mr Gyngell undertook responsibility for the financial and project management and administration of the development. In particular:(a) The bank nominated Gleeds as the monitoring surveyor to report progress to enable Miss Frankham to draw down funds. Notwithstanding the limited role of a surveyor Mr Gyngell instructed Gleeds to advise whether sums were due to My Home under the contract without consulting Miss Frankham or obtaining Miss Frankham’s authority;(b) The bank made payments to my Home without Miss Frankham’s consent or letting her satisfy herself that the money was due;(c) Mr Gyngell attended site meetings with My Home and gave instructions without Miss Frankham’s consent. Specifically Mr Gyngell instructed My Home; (i) to build the fourth house in the wrong place contrary to the planning consent, despite Miss Frankham’s objection; (ii) to commence plastering before the exteriors were complete and watertight.(d) Mr Gyngell advised Miss Frankham to pay My Home £5,000 for substandard bricks which she wished to reject.(e) Mr Gyngell acted as if he was the owner and developer of the land as evidenced by his conduct pleaded and by his repeated statements to Miss Frankham that he “owned” the development. Paragraph 12. The loan agreements were subject to terms implied by law and/or a duty on the bank’s part, that: (a) the bank would only act on Miss Frankham’s instructions in relation to the transaction of business on her account; (b) the bank would exercise all reasonable care in the conduct of Miss Frankham’s banking affairs. Paragraph 13. In breach of those terms and duty: (a) The bank drew down funds and paid them to My Home without the consent of Miss Frankham save for the initial £65,000; (b) The bank wrongly debited Miss Frankham’s account with £2,350, £5,000 and £5,000 on 12 January, 24 February and 27 March 2006 respectively; (c) The bank dishonoured cheques drawn in favour of material suppliers due to an alleged lack of funds caused by the incorrect debits; Paragraph 14. By reason of the facts set out in paragraphs 6 and 11 the bank through Mr Muckley and Mr Gyngell assumed responsibility for the financial planning, management and administration of the development and the contract with My Home, and thereby owed a duty to exercise reasonable care and skill in the planning, management and administration of the project as would be expected of a prudent and experienced property developer. Paragraph 15. Negligently and in breach of that duty of care the bank: (a) failed to advise Miss Frankham on the contract with My Home, in particular on the payment schedule; (b) failed to take proper steps to ensure My Home had completed work properly before making payments; (c), (d) and (e) as 11(c)(i),(ii) and (d) above;(f) failed to advise Miss Frankham when My Home left and failed to obtain a replacement contractor. Paragraph 16. In late March My Home left with the work incomplete and not commensurate with the payments made, and the fourth house in the wrong place. The bank refused to permit further drawdowns so a new contractor could complete the work. Paragraph 17. Building therefore stopped while Miss Frankham tried to resolve matters. Paragraph 18. From late April 2006 Miss Frankham tried to find finance elsewhere and by her solicitor informed the bank of her intention to bring a claim against the bank in respect of its handling of the development and her banking and financial affairs. Paragraph 19. At a meeting at Miss Frankham’s home on 17 July 2006 Mr Andrews of the bank told her that if she gave up the idea of going to another lender the bank would “sort the whole thing out” – quotation marks in the original. Miss Frankham understood, and was intended by Mr Andrews to understand, that: (a) the bank would continue to provide support and finance for the development and would continue to manage the development; (b) the bank would not withdraw funding or seek repayment until all the houses were sold and Miss Frankham’s claim against the bank resolved. Paragraphs 19 and 20. There were further loan agreements. Paragraph 22 and 23. On their true construction the loan agreements provided for repayment only on the final sale of the houses. Paragraphs 24 and 25. No houses have sold and nothing is due to the bank. Paragraph 26. Alternatively by reason of Mr Andrew’s representation acted on by Miss Frankham in taking up further loans the bank is estopped from demanding payment. Paragraph 27 admitted the bank’s letters of demand, paragraph 28 put in issue the amount due, and paragraph 30 denied that interest was yet payable. Paragraph 31 pleaded the set off of the counterclaim. Paragraph 32 of the counterclaim repeated paragraphs 2 to 27of the defence. Paragraph 33. The bank had wrongly debited Miss Frankham with £200,470 paid to My Home without her consent, and with sums totalling £12,350 referred to in paragraph 13(b). Paragraph 34. By reason of the negligence and breach of duty pleaded in paragraph 15: (a) Miss Frankham suffered loss in the amounts paid to My Home; (b) If My Home’s performance had been properly monitored remedial action could have taken place before My Home left, and a new contractor appointed to complete in October 2006 or shortly after. Miss Frankham has thereby lost the profit to be made on the sale of the houses in 2007. (c) Miss Frankham would not have had to apply for amended planning permission in respect of the fourth house and to give up part of her other land to get consent. She suffered delay and the costs of the fresh permission. (d) She would not have paid £500 for substandard bricks. (e) With proper support and advice from the bank a replacement contractor would have been engaged enabling the development to have been completed by 2007, and Miss Frankham lost the profit to be made on a sale at that time. Paragraph 35 is really a repeat of paragraph 14. Paragraph 36. Negligently and in breach of the duty pleaded in paragraph 35 the bank. (a) failed to give proper advice when My Home left and to obtain a new contractor – as paragraph 15(f); (b) wrongly advised Miss Frankham at the meeting on 17 July 2006 that she and her partner should complete the development theMisselves despite their inexperience; (c) failed to ensure funds were in place to enable the development to proceed smoothly despite further loan agreements being in place. Paragraph 37. Miss Frankham therefore had to complete the development in a piecemeal fashion and so the development was not completed by mid 2007 and the houses could not be sold or let. Paragraph 38 pleaded as loss caused ‘by reason of the matters aforesaid’: (a) Payments made to My Home including sub-standard bricks £205,470. Wrongful debits £12,350; (b) Interest. (c) Diminution in the value of the retained land, to be assessed. (d) “Loss of profit on the sale of the units to be assessed but estimated to be in the region of £1.2 million based on the increase in costs and interest of approximately £700,000 and a diminution in market value estimated to be £500,000 (£125,000 per unit).”[26]The witness statement of Mr Keuchel was made both in response to Miss Frankham’s statement of 29 May 2012 and in response to her application for permission to amend. He began by stating that her application to amend was defective because she had not set out why her amended case had real prospects of success. He exhibited Mr Muckley’s letter dated 15 June relied on in paragraph 7 of the amendment. The letter is of no assistance to Miss Frankham. It asked her to take various steps including the obtaining of two further quotations for the development, which steps were required to enable the bank’s lending to proceed. The quotations were required pursuant to paragraph 7.1(l) of the bank’s loan agreement. Mr Keuchel said that the pleading sought to lay all the difficulties of the development on a spurious duty of care said to have been owed by the bank. He said that Miss Frankham had served no evidence to support that case. He said that this was the first time allegations had been made against Mr Muckley, who no longer worked for the bank and for whom the bank had no address. He said that Mr Gyngell was employed by the bank and could give evidence. But he did not give Mr Gyngell’s answers to the serious allegations against him. He said that the instruction of Gleeds as monitoring surveyor was standard practice. The loan agreement provided for the monitoring surveyor to report to the bank on the value of the work. He exhibited documents showing that Gleeds had reported on what was due in six certificates. What is surprising is that in each Gleeds say that their information has been provided by My Home. So it does not seem that they verified what was happening on site, which is surely the function of such a surveyor. There are six instructions to send chaps payments to My Home. The first two and the last are signed by Miss Frankham. The others are not. He said the others had been authorised orally. He said that the bank could not examine the alleged incorrect debits without knowing why they were wrong. He exhibited the loan agreements and said that they could not bear the construction put on them in paragraphs 22 and 23 of the amended defence. He said the bank could not deal with the allegation as to dishonoured cheques made in paragraph 36(c) without details of the allegation. He made points as to the losses counterclaimed. Among the exhibits to Mr Keuchel’s statement is an email to Miss Frankham from Mr Paul Marks, a senior manager with the bank, dated 29 August 2006, which is shortly after the meeting with Mr Andrews on 17 July 2006 pleaded in paragraph 19 of the amended defence. Mr Marks said, in part:
“Looking forwards I have agreement in principle for a new loan to meet the estimated completion costs of the four houses based on our conversation last week and the numbers you supplied. Again a loan agreement will be drafted and forwarded to you shortly. “As I mentioned in my previous email I do not feel that either of us will be best served by me taking on the role of informal project manager and monitoring the site. Given past difficulties and the complexity of self-build some professional involvement is essential. I will therefore be appointing a new monitoring surveyor to work for the Bank who will review the costings to complete the work and authorise future drawdowns as the work progresses. I hope that this first step forwards will provide proof that I do wish to work with you to complete the four houses bearing in mind that it is only two working days since we met”
. The letter gives some insight into what was happening, and it raises questions as to the past.[27]In her witness statement of 17 August 2012 made in answer to Mr Keuchel Miss Frankham said that she was advised by counsel that an application to amend a statement of case did not require evidence and her application was not defective. As to the allegation that the duty of care alleged in the amendment was “spurious”, she said that if it was alleged that she or her counsel had acted in bad faith in the drafting of the amended case she would have expected to see evidence. It is implicit in this that she was saying that she was not acting in bad faith and that she believed that the facts she was putting forward were true. She said that she was advised that it was a matter of law whether the duty arose on the facts of the case. She said that the bank had known since 2006 that she was making complaints against Mr Muckley and more particularly Mr Gyngell. She said that the fact that Gleeds were appointed as monitoring surveyor did not affect the fact that they and Mr Gyngell took over the management of the project and allowed My Home to get paid for work not done or incomplete. She did not deal with her signatures on the chaps payment forms but said that she was never given the chance to decide whether she wished to pay My Home the terms demanded.

The Master’s decision

[28]In his judgment delivered at the end of the hearing the master said that there were two matters at the heart of the amended defence. One was the assumption of responsibility pleaded in paragraph 14 and the other was the allegation that repayment under the loan agreements was not due until the houses were sold. He said that he had to apply the test whether these defences had a sufficiently real prospect of success. He said that he found it inherently unlikely that the bank officials would have said that they would take over the management of the development. So the allegation did not have a sufficiently real prospect of success. As to the payments which were to be made he said that this was a matter for the monitoring surveyors, Gleeds. He rejected the constructions of the loan agreements which had been advanced for Miss Frankham. He said that the alleged estoppels could not live with the terms of the agreements Miss Frankham had signed. In respect of the allegation that the moneys had been paid without authority he said that Miss Frankham’s agreement to the final payment certified by Gleeds could amount to an authorisation of the earlier payments, but in any event the moneys were due. He said that there was nothing in the unparticularised allegation as to dishonoured cheques. He concluded that the case pleaded by amendment had no real prospect of success and so refused permission to amend. He struck out the original defence and counterclaim.[29]When the parties returned next morning to argue costs and permission to appeal he delivered a further short judgment. He said that as the new defence and counterclaim was intended to stand in the place of the original it followed that Miss Frankham no longer stood by the original. But, he said, his view of the merits of the original was the same as his view in respect of the amendment. He said “The reality is that the claim .... in the proposed amended defence was not supported by evidence and, in any event, had no real prospect of success”. He then dealt with the issue of limitation, which had been raised by the bank. He said that the allegations in the new pleading did not arise out of the same, or substantially the same, facts as set out in the original pleading, and so the counterclaim was statute-barred.

The appeal

[30]Shortly before the hearing before me Miss Frankham signed a statement of truth for the draft amended defence and counterclaim.[31]The master was originally dealing with an application to strike out the defence and counterclaim. In my view he was plainly right to decide that it could not stand. It was confused and gave no sufficiently clear statement of the case which the bank had to meet. In my view the master was also plainly right to give Miss Frankham an opportunity to put her case in order by producing a new pleading by amendment. There was of course no appeal against his order of 15 March 2012. The application with which the master was concerned then became the application to amend. It was rightly accepted before me in Mr Freedman’s written submissions and orally that in order to obtain permission Miss Frankham had to show that the amended case had a real prospect of success. That had not been accepted on her behalf before the master. This is the same test as applies on an application for summary judgment under Part 24, and, depending on the circumstances, it may be the test to be applied on an application under rule 3.4 to strike out an existing statement of case.[32]Part 17 covers amendments to statements of case. As stated at the start of paragraph 17.3.5 of the White Book, other than in cases involving limitation the Part gives no indication as to the principles which the court should apply in exercising its discretion as to whether an amendment should be permitted. There is however substantial case law, much of it related to the problem of late amendments. The law relating to the need for an evidential basis for a proposed amendment was reviewed by Lewison J in Fattal v Walbrook Trustees (Jersey) Ltd [2010] EWHC594 (Ch) in paragraph 56 and following. He began by quoting from the White Book at paragraph 17.3.6 which refers to the function of a statement of truth to verify the facts relied on in an amended pleading, so a party cannot raise allegations which are speculative or invented. In paragraph 59 Lewison J stated: “Accordingly, in considering whether to permit an amendment I am entitled and bound to consider whether the amendment is supported by any evidence, and that the relevant test is whether the amendment has a real prospect of success”.[33]As appears from her witness statement Miss Frankham was advised that no evidence was necessary to support her application. It was sought to justify that before the master on the basis that the amendment was in reality a reformulation of the original pleading in comprehensible form, so no evidence was required. It was said that, if permission was granted, the amended pleading would be served with a signed statement of truth. It was submitted to me on behalf of the bank that Miss Frankham should have made a witness statement to which the amended pleading was exhibited.[34]What evidence is required on a particular application for permission to amend must depend upon the circumstances. The least that is required is that the draft should be verified by a signed statement of truth. Here although there was much in the new defence which was in the old it was a quite different document. Many of the problems which arose before the master and before me would probably not have arisen if Miss Frankham had made a full witness statement setting out in non-legal language and in appropriate detail what she said had happened, that is, telling her story, and exhibiting the main correspondence and other documents which she had. I consider that this is what should have been done here given the nature of the case which she was seeking to advance and the unfortunate previous history.[35]The evidential position was not considered before the master because the bank took the position that there was no evidence which Miss Frankham could rely on and because it was said for Miss Frankham that none was needed. It appears from his second judgment that the master rightly thought that there should have been evidence, and that he accepted that there was none. However it does not appear that the master had been asked to dismiss the application out of hand because there was no evidence without considering whether the amended case had a chance of success. Most of the argument before him was about whether it had a real chance of success, and his judgments were almost exclusively concerned with that. If he had indicated that he was minded simply to dismiss the application for want of evidence without hearing argument as to the merits, it is highly probable that a statement of truth would have been provided. There was evidence before the master in three respects. The original defence and counterclaim was verified by a statement of truth. So was the further information. In her statement dated 17 August 2012 Miss Frankham denied that she was putting forward the amendment in bad faith and she said that Gleeds and Mr Gyngell took over the management of the project. I was told that the bank’s decision not to answer the factual allegations in the amended case was based on the lack of evidence from Miss Frankham including the view taken on behalf of the bank that the original defence was not verified – a view which I unhesitatingly reject. I have come to the conclusion that the fair course in this unsatisfactory situation is to disregard the fact that the amended pleading was not verified when it was before the master. That is what in effect the master did for most of his two judgments.[36]The central paragraph in the amended defence seems to me to be paragraph 14. It is said there that by reason of the matters set out in paragraphs 6 and 11 Mr Muckley and Mr Gyngell assumed responsibility for the financial planning, management and administration of the development. That brings to mind the reference to an informal project manager in Mr Marks’ letter of 17 July 2006.[37]It is well-established in case law that a bank which lends money for a project or investment does not ordinarily undertake any obligations to the borrower in respect of the project or investment. If a bank is to be subject to obligations outside its ordinary banking role clear evidence is required. A bank may come under additional obligations if it agrees to do so, or, as it may alternatively be put, assumes responsibility. One way in which it may assume responsibility is by doing acts which take it outside its banking role and then it may find itself owing a duty to its customer to carry out those acts with appropriate skill and care. Among other cases I refer to Woods v Martins Bank [1959] 1 QB 55 and Lloyds Bank v Cobb (1991) 12 LDAB 210. Applying this here, if the bank by Mr Muckley or Mr Gyngell agreed with Miss Frankham to act in effect as project managers of the development, the bank would come under a duty to do so with appropriate skill and care. Equally, if the bank acting by Mr Gyngell in fact took over the management, the bank would come under a similar duty. If the bank acting by Mr Gyngell did particular acts in relation to the project, the bank might well come under a duty to Miss Frankham in respect of those acts. I do not think that the general principle was in dispute before me.[38]The important part of paragraph 6 for this purpose is sub-paragraph (c), which alleges that Mr Muckley would give Miss Frankham ‘all other necessary support and advice throughout the course of the project’. That is a long way from saying that Mr Muckley undertook to be her project manager, which is the effect of paragraph 14. It promises more of a hand-holding exercise, and it would be difficult to give legal effect to such an imprecise promise. The allegation in paragraph 7 is not supported in any way by the letter on which it relies. The amendment was an opportunity to put Miss Frankham’s case as it could best be put. I do not think that paragraphs 6 and 7 provide support for paragraph14.[39]Paragraph 11 makes five allegations as to what Mr Gyngell actually did. It may be surprising that an employee of a bank should act as is alleged, but that should not by itself prevent Miss Frankham from making the allegations. In my view, contrary to that of the master, (c), (d) and (e) are not so inherently unlikely that they can simply be dismissed as incredible. (a) and (b) relate to the appointment of Gleeds and payments to My Home. I find this more difficult because Gleeds was acting as the monitoring surveyor and Miss Frankham appears to have approved the payments. If Mr Gyngell was acting as alleged in (c) to (e) it is possible that he took over the payment of My Home to the effective exclusion of Miss Frankham and was in breach of duty to her in the way the payments were managed. So even though this part of her case, i.e. (a) and (b), faces difficulties I do not think that she should be shut out from running it: it has a real prospect of success.[40]Paragraph 12 is largely uncontroversial.[41]Paragraph13(a) alleges payments to My Home without Miss Frankham’s consent. That faces the difficulty of the three signed chaps authorisations. But having decided that Miss Frankham should be permitted to run her case set out in paragraphs 11(a) and (b) I think that this should stay so the whole matter can be investigated.[42]Paragraphs 13(b) and (c) relate to wrongful debits and dishonoured cheques. No particulars are given. In so far as proper particulars are given promptly, these should remain: but not otherwise.[43]Paragraph15(a) alleges that the bank did not advise Miss Frankham not to agree to the payment schedule proposed by My Home. It is not alleged that Miss Frankham sought the advice of the bank on the contract, or that the bank gave advice. This allegation has no prospect of success.[44]Paragraph 15(b) – payments to My Home, 15(c) - the fourth house, 15(d) – plastering, and 15(e) – substandard bricks, remain.[45]Paragraph 15(f) alleges that the bank left Miss Frankham in the lurch when My Home departed and failed to secure a replacement contractor. If Mr Gyngell chose to give up acting as project manager at this point (if he had so acted), that was something which was open to him. Miss Frankham cannot argue that she had a contract with the bank that the bank would manage the project.[46]The next paragraph of importance is paragraph 19. It is there alleged that Mr Andrews said that if she stayed with the bank the bank “would sort the whole thing out”. That is a vague phrase and if Miss Frankham was to treat it as having specific consequences beyond the bank agreeing to lend her more money it was necessary to ask further what was meant. She did not clarify what the bank would lend. That was the subject of further discussion with Mr Marks. It certainly did not mean that the bank would continue to have responsibility for the development. That was also something which she raised with Mr Marks and he rejected it. It did not mean that the bank would not require repayment until all the houses were sold or until Miss Frankham’s claim was resolved. Paragraph 19 is unsustainable.[47]The construction put on the loan agreements in paragraph 22 and 23 as to their not being repayable until all the houses were sold is misconceived. That was accepted on Miss Frankham’s behalf before me.[48]To summarise thus far, paragraphs 6, 7, the opening of 8, the opening of 9, the references in paragraph 14 to paragraph 6 and to Mr Muckley, 15(a), 19, the opening of 20, 22, 23, 25, and 26 must go.[49]Paragraph 31 raises the defence of set-off. It was relied on by Miss Frankham to avoid any limitation problem. It was submitted that there was an equitable set-off as the facts giving rise to the cross-claim arose from the same subject matter as the claim. The test as to whether an equitable set-off is available was best formulated by Lord Denning in “The Nanfri” [1978] 2 QB 927 at 975 as where the cross-claim “is so closely connected with [the claim] that it would be manifestly unjust to allow [the claimant] to enforce payment without taking into account the cross-claim.” That is the case here, and I do not think that the contrary was contended on behalf of the bank.[50]In Hanak v Green [1958] 2 QB 9 Lord Denning held, obiter, that limitation did not bar a defendant from raising an equitable set-off. In Westdeutsche Landesbank v Islington Borough Council [1994] 4 All ER 890 Hobhouse J considered the law and held that Lord Denning’s view was correct. He said that in textbooks it had been generally accepted.[51]In Fearns v Anglo-Dutch Paint & Chemical Company [2010] Mr Andrew Leggatt QC had to consider when damages payable in sterling to the claimant and a debt payable to the defendant in another currency should be set off against each other to derive a net liability. The choice was between the date when the claim arose and the judgment date. In paragraph 23 of his judgment Mr Leggatt held that an equitable set-off could be used as an immediate answer to a claim for what would otherwise be due. Having reviewed authority he held in paragraph 33 that neither the existence nor the exercise of a right of set-off has the effect of extinguishing or reducing either claim. However Mr Leggatt was not considering the operation of limitation, which works in a different way. I should apply the law as stated by Hobhouse J.[52]I conclude that it is open to Miss Frankham to set off against the bank’s claim such losses as she can establish arose from the bank’s breaches of duty in connection with the development regardless of whether she would be barred by limitation if she could only counterclaim.[53]I come now to the counterclaim. I have held that Miss Frankham has no claims against the bank for breach of duty arising after My Home left the site. That will require a considerable rethinking of her claim for loss. In any event the pleading is general and in unconvincing terms. That may have arisen in part from the fact that Miss Frankham is involved in complex litigation with very limited funds.[54]It is important that when Miss Frankham’s claim for loss is reformulated proper account is taken of the reality. The reality includes the following. The hopeless claims that she does not have to pay the bank until she has sold the houses has gone. The bank had no responsibility for her choice of My Home as the contractor. The bank had no responsibility for the terms of her contract with My Home. The bank was not responsible for My Home leaving site. Such responsibilities as the bank may have assumed ended when My Home left. The bank’s conduct set out in the surviving paragraphs of the amended defence may have caused some delay in the completion of the houses and their being available for sale. But it cannot be said that it caused all of the delay, or even a large part of the delay, that in fact occurred until the houses were finally completed. If a claim for loss resulting from delay is to be included, it must be set out in a way that shows(i) how it said that the specified period of delay was caused by the acts and omissions of the bank which survive in the pleading, and(ii) how the financial loss alleged to result from that delay is calculated.[55]It was submitted that her claim for loss of value was barred as a matter of law by the decision of the House of Lords in South Australia Asset Management Corporation v York Montagu Ltd [1997] AC 191. There the House held that a negligent valuer of property for the purpose of lending was not liable for loss attributable to a fall in the market but only for the difference between the valuation provided and what would have been the correct valuation. But as the leading speech by Lord Hoffman at pages 218 and 219 shows there are situations in which loss of market can be included as part of the recoverable loss. Miss Frankham should not be barred from claiming loss arising from delay and a drop in the market on the authority of the South Australia case. As set out in the preceding paragraph she will of course have to show that the delay was caused by breach of duty by the bank.[56]I have already held that limitation is no bar to Miss Frankham setting up her cross-claim for damages by way of equitable set off. What follows is on the basis that I am wrong on that. Rule 17.4 follows the provisions of section 35 of the Limitation Act 1980. It provides that an amendment to substitute a new claim may only be allowed if it arises out of substantially the same facts as a claim in respect of which the party has already sought a remedy. I am doubtful whether the claim for damages in the amended pleading is a new claim rather than a re-shaping of the original claim. I refer to a schedule comparing the two forming part of Mr Freedman’s written submissions and to the summaries of the two documents set out in this judgment. There are a number of authorities as to the application of the words “the same or substantially the same facts”. I have considered them as they are summarised in paragraph 17.4.4 of the White Book. Whether or not the claim in the amended counterclaim is a new claim, in my view it is plain that here the facts relied on in the proposed amended defence as founding the counterclaim are substantially the same as those set out in the original defence. Limitation is no bar.[57]I conclude that the master should have given limited permission to amend in that he should have held that only some parts of the proposed amended defence had no real chance of success. I will hear counsel as to the course to be adopted to progress this litigation. In doing that I will have in mind the opportunities which Miss Frankham has had and the delays which there have been.