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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Swain-Mason & Ors v Mills & Reeve (a firm) (Rev 1) [2011] EWCA Civ 14 (20 January 2011)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2011/14.html
Cite as: [2011] EWCA Civ 14, [2011] 1 WLR 2735

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Neutral Citation Number: [2011] EWCA Civ 14
Case No: A3/2010/2845 and 2999

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE PETER SMITH

[2010] EWHC 3198 (Ch)

Royal Courts of Justice
Strand, London, WC2A 2LL
20 January 2011

B e f o r e :

LORD JUSTICE LLOYD
LORD JUSTICE ELIAS
and
LORD JUSTICE PATTEN

____________________

Between:
(1) CLAIRE SWAIN-MASON, DAVID JONATHAN BERRY and NEIL GORDON KIRBY
(executors of C J Swain deceased)
(2) CLAIRE SWAIN-MASON
(3) ABBY SWAIN
(4) GEMMA SWAIN
(5) CHRISTA SWAIN
Claimants
Respondents
- and -

MILLS & REEVE (a firm)
Defendants
Appellants

____________________

Mark Simpson Q.C. and Marianne Butler (instructed by Mills & Reeve) for the Appellants
Robin Mathew Q.C. and Alexander Learmonth (instructed by Berry & Walton)
for the Respondents
Hearing dates: January 13-14, 2011

____________________

HTML VERSION OF REVISED JUDGMENT
____________________

Crown Copyright ©

    Lord Justice Lloyd:

  1. We have before us appeals against two orders made by Peter Smith J, one made on 24 November 2010, in relation to which he gave his reasons in a reserved judgment handed down on 6 December 2010, [2010] EWHC 3198 (Ch), and the other made on 10 December 2010, in relation to which the judge gave an extempore judgment on that day.
  2. The claim is for damages for negligence alleged on the part of the Defendant solicitors. The issue before the judge was whether the Claimants should be permitted to re-amend their Particulars of Claim, on an application made at the beginning of the trial. He granted permission to re-amend on 24 November, which would have been the second day of the trial, but subject to requiring the Claimants to put in evidence to support their amendments by 3 December, and to the Defendants being entitled to apply to have the amendments disallowed once they had seen the evidence. Evidence was duly filed and served on 3 December, and the Defendants then applied to have the amendments disallowed. For good measure they also applied under Part 24 of the CPR for summary judgment in their favour on the claim as originally pleaded. The judge rejected both of those applications. The first appeal is against the grant of permission to re-amend; the second is against the judge's refusal of the application to disallow the re-amendments (which is therefore the other side of the same coin as the first appeal) and also against his dismissal of the application under Part 24.
  3. I will start by summarising the underlying events which gave rise to the claim, and then record in outline the history of the proceedings, before coming in more detail to what happened during the hearings before the judge.
  4. The underlying facts

  5. Mr Christopher Swain ("Mr Swain") was a successful businessman who had built up, among other business interests, a corporate group headed by Swain's International plc ("the Company"), of which he owned just over 72% of the shares. He had four daughters, of whom two worked in the business. Each of the four daughters owned some 5.3% of the shares in the Company. Most of the rest of the shares were held by an employee benefit trust.
  6. By the beginning of 2007 Mr Swain spent most of his life in Thailand. He was 61 years old, and had a history of heart problems. During 2006 he had negotiated the principles of a Management Buy-Out (MBO) under which his shares and those of his daughters were to be bought by a new company owned by members of the current management. Heads of Terms had been agreed in November 2006 and the Share Purchase Agreement (SPA) was under negotiation in detail with a view to completion on 31 January 2007. We are told that it was particularly complex, even by the standards of such transactions. The overall value of the consideration, partly in cash and partly in loan notes, was about 3.5 million. About 1 million was represented by loan notes payable over ten years. The Defendant firm was retained in June 2006 to advise on the transaction on behalf of Mr Swain and his daughters. They gave advice about the tax implications of the transaction by a long letter dated 4 January 2007. (This and other advice was given to all their clients, and when, for the sake of brevity, I refer to them, or to a hypothetical solicitor, as advising Mr Swain, it should be understood that the advice was or would have been also to his daughters.)
  7. In the meantime the solicitors had advised on a clearance letter to be sent to HMRC in order to obtain an acceptance by HMRC that the MBO was being undertaken for bona fide commercial reasons and not with an objective of tax avoidance. The letter included reference to Mr Swain's "continuing weak health", to his heart attack and diabetes, and to the fact that he would not return to active work though he hoped to be active as a consultant to the business in Thailand.
  8. Although Mr Swain spent most of his time in Thailand, he was domiciled in England and was also, for UK tax purposes, resident and ordinarily resident in the UK. The clearance letter referred to the possibility that he might cease to be resident and ordinarily resident in the UK, possibly as early as the 2007/8 tax year.
  9. Mr Swain had had a heart attack in 2001, he suffered from type 2 diabetes and he was overweight. In January 2007 a date of February 17th was fixed for a procedure which he had been advised that he should undergo. He told his daughters and the members of the management team who were active in relation to the MBO of this by an email dated 13 January. This would prevent his attending several forthcoming board meetings. He told the addressees that he had to give priority to the heart treatment. He also passed the information on to Mr Hodgson, the corporate partner of the Defendants who was leading the advice on the transaction, though in a somewhat oblique way.
  10. The MBO was agreed and was completed on 31 January 2007, as planned. Mr Swain underwent the planned heart procedure in Thailand on 17 February 2007. Sadly and unexpectedly, he died during the procedure. There is evidence that he had been worried about undergoing it, but there is also expert medical evidence (Dr Fynn, for the Defendant) to the effect that the risks of a patient dying during or as a result of the particular procedure were negligible: less than one in a thousand. There is a debate as to whether it was properly to be called an operation or only a procedure. I will refer to it as an operation without prejudice to the view to be taken as to its significance and the degree of risk which it carried.
  11. The principal fiscal consequence of his having died at that time, after the MBO, was that the proceeds of the sale of his shares, held in his estate, were liable to inheritance tax (iht), since he was domiciled in the UK. If, by contrast, he had died still owning his shares, they would not have been subject to iht because they would have been covered by business property relief. Moreover, in that case there would have been a deemed disposal of the shares for capital gains tax (cgt) purposes on his death so that, on a later disposal of the shares (if, for example, the MBO had been entered into and completed by his executors), the only chargeable gain would have been any further increase in the value between the date of his death and the date of the disposal, whereas on the actual disposal there was a charge to cgt, albeit moderated by taper relief for business property. These two adverse fiscal consequences were called the Tax Consequences in the Particulars of Claim, and I will use that label.
  12. The proceedings

  13. In March 2008 the Claimants' solicitors sent their first letter notifying a claim. The gist of the complaint was that the Defendants, who knew of the forthcoming heart operation, should have advised Mr Swain that completion of the MBO be delayed until after the operation. If he had been given that advice, requiring a delay of no more than 18 days, he would have agreed, as would all other parties. After his death the MBO could then have been completed by his estate without the adverse Tax Consequences, the cost of which was put at 1.3 million.
  14. In March 2009 the proceedings were issued. The Defendants were said to be under a duty by virtue of an express or an implied term of the retainer, or a duty of care at common law, to advise their clients, Mr Swain and his daughters, of any particular risks which as lay persons they might not appreciate but of which the Defendants had or ought to have had knowledge, namely the Tax Consequences in respect of iht and cgt if Mr Swain were to die after rather than before completion of the MBO.
  15. The allegation of breach of duty or negligence was that, knowing of the forthcoming operation, the firm ought to have advised their clients of the Tax Consequences, and that the sale should be deferred until after the operation. The pleading in this respect spelled out at some length the advice that ought to have been given, all of which was tied to the prospect of the operation.
  16. As regards causation, it was alleged that, if the advice had been given which ought to have been given, the entry into the MBO would have been delayed until after the operation, and the Tax Consequences would not have been incurred. The loss alleged to have been suffered was the iht and the cgt (and interest), amounting to some 1.35 million.
  17. In the Defence, the Defendants contended, among other things, that the risk of death as a result of the operation was negligible. In a request for further information in June 2009 the Defendants asked whether it was the Claimants' case that the advice ought to have been given even if the Defendants did not know that Mr Swain had health problems and was about to undergo an operation. The Claimants refused to answer this request as improper, and alleged that Mr Swain thought he had a 50/50 chance of surviving the operation.
  18. In February 2010 the Claimants applied, successfully, to strike out a part of the defence. The details of that do not matter, but part of the basis for the order striking it out was that knowledge of the heart procedure was "a vital lynchpin" of the Claimant's case against the Defendants.
  19. In April 2010 the Claimants put forward draft amended Particulars of Claim. The trial was then due to start on 19 April. One element of the amendments was an allegation, as regards what the Defendants ought to have advised, that they ought "at the very least to have advised Mr Swain that the MBO would have consequences that would have a bearing on his estate planning situation and advised him to seek advice on that situation before proceeding", and that he would have obtained such advice, which would have included advice on the Tax Consequences.
  20. The case came on for trial before His Honour Judge Kaye Q.C. on 20 April (after a reading day). Unfortunately one of the Claimants' witnesses, one of the leading participants in the MBO on the buyers' side, was in the USA and unable to travel to London because of the suspension of flights as a result of the eruption of the volcano in Iceland. For that reason the judge adjourned the trial, but then considered the Claimants' application to amend. Mr Mathew Q.C. (then as now appearing for the Claimants) put the case to the judge on the footing that the amendments were no more than clarification of the existing case, and were based on knowledge of the prospective heart operation. The judge said that he thought the amendment needed to be rethought, but he did not rule formally on the position, leaving it to the Claimants to reconsider the position and endeavour to put forward an amendment to which the Defendants would agree, in default of which there would have to be an application to the court. Eventually, after five further attempts, an amendment was agreed, and amended Particulars of Claim were served accordingly in May.
  21. The most important new allegation, for present purposes, is paragraph 8.3A. This alleges that the Defendants ought to have told Mr Swain in their letter of advice dated 4 January 2007 that the advice given did not cover advice on the effects of the MBO as regards iht, including any iht consequences in relation to the consideration to be received including the loan notes, and that although advice was given on cgt this was not necessarily comprehensive. If they had said so, Mr Swain would have sought advice on such additional matters from the Defendants. The Defendants would have advised him about the Tax Consequences, or would have advised that such advice could not be given within the time available before the due date for the MBO, in which case completion of the MBO would have been deferred.
  22. The new date for the trial was to be 23 November (after a reading day). Skeleton arguments were exchanged on 17 November. On 22 November Mr Mathew told Mr Simpson Q.C., for the Defendants, that advice as to the Tax Consequences ought to have been given even before the Defendants knew of the heart operation, so that the duty was said to arise regardless of knowledge of the heart operation. Mr Simpson's position was that this case was not open to the Claimants on the pleadings as they stood. Mr Mathew did not accept that position. That, therefore, brings me to the proceedings before the judge.
  23. The opening of the trial before Peter Smith J

  24. At the outset of the trial one complicating factor arose, namely that the judge had personal direct experience of a procedure which was either the same as or very similar to that which Mr Swain underwent. By that time the Claimants had expressly accepted Dr Fynn's expert evidence as to the negligible risks attached to the operation, while reserving the right to argue that this was irrelevant. The judge said that Dr Fynn's analysis of the risks "accords exactly with my understanding". Mr Mathew's first application was that the judge should recuse himself because of his personal experience. The judge was not sympathetic to that application, on the basis that he could not understand why his personal experience mattered, given that it accorded with the expert evidence. Mr Mathew might have, but did not, make in terms the point (which he put to us as part of his case) that it did not matter what the experts thought (of which Mr Swain was not aware, nor were the Defendants), what mattered was what Mr Swain thought about the risks. However, because of the judge's resistance, Mr Mathew withdrew his application, and he then proceeded to open the case. In the course of what he had said by then, he had already indicated to the judge that part of his case was that the Defendants' duty to advise was not dependent on knowledge of the ill-health and the forthcoming operation.
  25. Early in Mr Mathew's opening, the judge asked for an agreed statement as to what the tax consequences of the MBO were, and what would have changed if account had been taken of the possibility that Mr Swain might die shortly after completion of the MBO. He then explored with Mr Mathew some of the issues that arose or might have arisen, and how liabilities to iht and cgt might have been alleviated or removed, including putting forward a number of ideas of his own. He indicated a current view that Mr Swain would not have wanted to defer either the operation or (at any rate to an uncertain date) the MBO. He also said that, to the extent that there were unavoidable risks over a period of time, he used to advise that the beneficiaries should pay for insurance to cover that risk. That point arose in the context of the fact that Mr Swain was not only resident but also domiciled in England, and that while a change of residence, if properly prepared, might be effected quickly, a change of domicile for iht purposes would require three full tax years to elapse.
  26. In the afternoon of the first day, Mr Simpson made the point to the judge that the Defendants had always understood that the Claimants' case was dependent on knowledge of the ill health and the operation, whereas a different case seemed now to be made. The judge expressed the view that the wider case was not to be found in the pleadings. Then Mr Mathew submitted that the case was already pleaded. After a good deal of debate, the judge said that the case was not pleaded on the basis of a duty not dependent on knowledge of ill health and the operation, and he ruled against Mr Mathew on that point, though without giving reasons other than those that he had expressed during the debate. In response to that Mr Mathew, having considered the position, asked to have the opportunity to put forward an amendment. After some discussion about the possible consequences as regards additional evidence, the judge adjourned the case until the following afternoon, requiring Mr Mathew to put forward his draft amendment to Mr Simpson early that evening.
  27. In its final form, for which the judge granted permission, the significant part of the re-amendment was the introduction of a new paragraph 8.1A with subparagraphs 8.1A.1 (itself with three sub paragraphs) and 8.1A.3. In 8.1A it is alleged that the Defendant should have advised Mr Swain of the existence of the Tax Consequences at the same time as or soon after the tax advice given on 4 January 2007. If they had given that advice, Mr Swain would have sought further advice as to means of mitigating those consequences, probably from the Defendants. It is then said that he would have been advised that the MBO should be deferred either until after detailed advice had been obtained, or at least until after the heart operation, this advice would have been accepted, and the deferral of the MBO would have been agreed. If there were any hesitation about deferring the MBO unconditionally, lest completion on the terms already agreed in principle might be jeopardised, the parties could and would have agreed the grant of non-matching call and put options to protect the position of each side to the MBO. That contention was set out in paragraphs 8.1A and 8.1A.1 to 3.
  28. I will set out the whole of paragraph 8.1A.3 since this was the main subject of debate before us:
  29. "Alternatively, the Defendants could have advised Mr Swain, once non-UK resident and ordinarily resident, to transfer his shares (whether or not subject to put and call options) to an offshore company or family trust, which would complete the MBO, and for Mr Swain to become non-domiciled in the UK for tax purposes, and to take out insurance against the possibility of his dying before losing his domicile for IhT purposes in the UK for tax purposes (i.e. within 3 years). Mr Swain would have acted in accordance with that advice."
  30. Overnight, Mr Simpson had sought clarification of a number of aspects of the originally formulated draft amendment. Some of these points were met by slight modifications which are reflected in the text as quoted. Others are important for the answers given. As regards paragraph 8.1A.3, asked whether that advice represents the advice that would have been given if there had been time to do so, the Claimants said:
  31. "It is the course of action that, in our view, in the circumstances of Mr Swain's declared intention to move to Thailand, was simple to effect and preserved the MBO deal while avoiding inter alia the tax consequences."
  32. Asked then what their case was as to how long it would have taken the Defendants to formulate this advice and tell Mr Swain, the answer was "a few days if efficient". In turn, asked, if Mr Swain had been advised to implement the scheme, how long it would have taken to implement, the answer was "Not long if efficiently done, at the most a few weeks." As for the insurance, their case was that the sum for which Mr Swain would have insured his life was the amount of the iht.
  33. The application for permission to re-amend

  34. On the afternoon of November 24th the hearing resumed before the judge and Mr Mathew applied for permission to re-amend, in the form of the slightly revised version of the draft, with the further benefit of the answers to Mr Simpson's request for clarification. Mr Mathew did not argue his application. He merely put the draft before the judge, with the overnight email exchange, and supported it with a note referring to some relevant authorities. Mr Simpson then put forward his arguments against the grant of permission to re-amend. A first point he took was that, in the light of the Claimants' case as to how long the advice would have taken to be given, the first alternative (in paragraph 8.1A.1 to 3) did not arise, since it assumed that there would have to be a delay in order to get the advice. Therefore he focussed instead on paragraph 8.1A.3. He described this in argument as a completely new case, and as one based on the loss of insurance proceeds rather than on incurring unnecessary tax liabilities. His arguments proceeded on the basis that the Claimants' case in this paragraph was that there would not be a deferral of the MBO, but that the arrangements, including the transfer to an offshore company, would be put in place before 31 January. The judge then said to Mr Simpson that although the pleading was not adequate, the case seemed to him to be relatively straightforward, and that if the Claimant were given the opportunity to "firm it up with advice", there would be a case which the Defendant could readily understand and could meet at trial. Mr Simpson sought to reiterate that the flaw in the new case was that the advice would take a few weeks to implement, but that a few weeks were not available between the time when the advice should have been given and the due date for completion of the MBO, so there just was not time to do it before then. The judge's response was that, first, "in transactions like this, I think two weeks is a long time" and, secondly, that at most the MBO would have to be put off "maybe a week maybe two weeks". Mr Simpson pointed out that there was no evidence that it would be achievable, to which the judge said that there was no evidence of anything relevant at that moment. He went on:
  35. "when I am asked to amend, I'm entitled to take into account what my experience is of transactions like this and likely timeframes, and for my part, although they will, if the amendment is allowed, have to produce evidence to show that, it is clearly arguable, in my view, that this transaction could have been put in place in two weeks."
  36. To Mr Simpson's submission that permission to amend should only be given if supported by evidence, the judge accepted that but indicated that permission could be given subject to the amendment being disallowed if the evidence did not support it. The judge then indicated that he would wish to have the trial resumed before him as early as possible, once time had been allowed to cope with the amendment, and he spoke of a provisional date of 17 January. Then Mr Simpson argued that in any event it should not be allowed because of the prejudice to the Defendant, especially in the light of the history of the amendment in April 2010. He put his case as regards prejudice as being
  37. "the prejudice of the delay of a trial, yet again, in circumstances where it should not be delayed and they have allegations of negligence hanging over them."
  38. Having heard what Mr Simpson had to say, the judge ruled against him, and refused permission to appeal, reserving his reasons to be given in a handed down judgment. He decided to grant permission to re-amend but to require the Claimants to put in evidence by 3 December to support the re-amended case, and to give the Defendants the opportunity to apply for it to be disallowed on the basis that the evidence was insufficient to show that the amendment has a real prospect of succeeding. He also gave directions for preparation for trial, the hearing to commence on 17 January, estimated for 10 days, with the first day for reading.
  39. The judge's reserved judgment on the amendment application was delivered on 6 December. He described the Claimant's original pleaded case and identified problems with it. One was that it concentrated on the seriousness of the illness and of the imminent operation, whereas in his view that operation was not risky, as the Defendants' expert evidence showed, so that the imminence of the operation did not by itself provide a reason for the Defendants to advise as to the Tax Consequences on death. He called it a "difficult case (to put it mildly) on causation". He referred to his having ruled that a different case, where the duty to advise did not depend on ill health and the operation, was not open to the Claimants on the pleadings. Then he described the application to re-amend, and said this about the new case:
  40. "25. The Re-Amendment involves first contending that the Defendants had a duty to advise any seller in the position that Mr Swain found himself of the advisability of seeking advice to address the consequences of the change of assets as set out above. Second, the proposed Re-Amendment contends that such advice could have been obtained within a few weeks at the most and that a satisfactory scheme could have been created which would have been put in place at the same time as the SPA and ensured that thereafter Mr Swain's estate would be protected from any CGT and/or IHT consequences arising out of a death after the sale of his business."
  41. Dealing with matters relevant to his discretion, the judge referred to the history of the amendment made in April 2010, and said it was not conclusive but it was relevant. He recognised that the amendment was late, and would lead to an adjournment, but not to a long one, as the trial was to resume on 17 January. So far as the applicable principles are concerned he referred to comments in a judgment of Peter Gibson LJ in Cobbold v Greenwich LBC (August 1999) to the effect that:
  42. "Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party caused by the amendment can be compensated for in costs, and the public interest of the administration of justice is not significantly harmed."
  43. Then he dealt with the case relied on by the Defendants as regards prejudice. He said this at paragraph 37:
  44. "The third matter raised by Mr Simpson QC was prejudice. If of course there is prejudice which might be caused by a proposed amendment which cannot be resolved or dealt with that is a substantial factor that almost invariably will lead to a refusal of the application. There is no suggestion that the costs that have been wasted will not be paid to the Defendants. They will therefore be fully paid for the financial cost of this adjournment. I accept that the proceedings are stressful (but no more stressful for them than the Claimants) and that the presence of the proceedings unresolved will be prolonged by the consequences of the adjournment. However that period as I have said is a relatively short one. They will be required to face a new case. However the evidence is not likely to be greatly lengthened as it involves primarily looking at legal issues and expert evidence. It is true as I have said that the case is differently presented but the mere fact that the case is differently presented is not prejudice to the Defendants in this situation in my view. It must be appreciated that the case is not statute barred. No principle of estoppel arises or prejudice can be relied upon merely because the Defendants face a new case for the first time."
  45. As against that he dealt in paragraph 38 with the position of the Claimants. The claim was substantial, representing about 30% of the value of Mr Swain's estate. If permission to re-amend was refused he said that "the trial will proceed on what the Claimants will perceive as the wrong basis", which would be an injustice. "It would be an affront to justice in my view to allow a trial to proceed on a false and artificial premise created by the refusal of the amendment."
  46. He discounted, as against that injustice, the prejudice caused to the Defendants, saying:
  47. "It is not said on behalf of the Defendants that they cannot meet these amendments in time for the adjourned trial. It is not said that they are seriously prejudiced in my view by the relatively short delay. It is not said that they have been prejudiced by the way in which the Claimants have first put forward such a claim, withdrawn it and now seek to reinstate it beyond the fact that the case has taken a different turn."
  48. That, therefore, was the basis on which the judge granted permission to make the re-amendment, subject to it being supported by evidence. His order is the subject of the first appeal.
  49. The supporting evidence and the application to disallow the amendment

  50. On 3 December 2010 the Claimants' solicitors served the supporting evidence, of which two elements need to be mentioned. The most important is a preliminary expert report of Mr Andrew Farley, a partner in Wilsons LLP solicitors and a solicitor experienced in private client work. The other is a witness statement by Mrs Claire Swain Mason. Mr Farley gave his opinion in relation to the question what advice a competent solicitor would have given to Mr Swain on or about 4 January 2007 if called upon to advise him on the Tax Consequences and how to mitigate their adverse implications, with the MBO agreed in principle and completion of it planned for 31 January. He did not express a view as to the scope of the Defendants' retainer. (He provided a supplementary report dated 9 December, which added points relating to the significance of knowledge of the forthcoming operation.)
  51. His expert opinion was that the Defendants should have drawn Mr Swain's attention to the Tax Consequences of the sale as regards iht and cgt and should have offered to advise further on these points if so instructed. If such advice had been requested and given, his opinion was that the advice would have been that it would be highly advantageous for both iht and cgt for the MBO to be deferred until after 5 April 2007 and for Mr Swain to take the steps necessary in the meantime to become non-resident and non-ordinarily resident in the UK.
  52. So far as iht is concerned, it would take three full tax years for Mr Swain to cease to have a UK domicile for iht purposes, and even after that assets situated in the UK would be subject to iht on his death. However, if the MBO were completed after 5 April 2007, he being by then neither resident nor ordinarily resident in the UK for tax purposes, he could invest the cash proceeds which he received in exempt gilt-edged securities which, for a non-resident, would be free of iht. That would not be possible in respect of the loan notes which would be treated as situated in the UK and therefore subject to iht even for someone not domiciled in the UK. Some techniques might be possible to mitigate that risk, mainly involving borrowing a large sum on the security of the loan notes, to reduce their value, and to invest the proceeds of the loan in exempt gilts. To the extent that risks remained uncovered, insurance cover might have been obtained in case he were to die before 6 April 2010, i.e. before he could establish a non-UK domicile for iht purposes.
  53. In relation to cgt, the main objective as regards UK tax could be achieved by the change of residence before 6 April 2007 and by postponing the MBO until after that date. He would of course need to establish what his position would be under Thailand's tax laws, but so far as UK tax is concerned, it would be relatively easy to escape from the risk of losing the benefit of the cgt uplift on his death.
  54. Mr Farley also pointed out that, if there were any commercial concerns about delaying the MBO, on either side of the transaction, these could be removed, without risking the tax saving, by the grant of mutual, but not matching, options. He said that it was Mr Swain's poor health that would have led the hypothetical solicitor to advise about the risk of the loss of 40% of the cash proceeds through iht:
  55. "This factor, in addition to the clear possibility of complete freedom from CGT, would have formed the basis of the primary tax advice to [Mr Swain] to seek to negotiate a deferral of the sale to 6 April 2007 or shortly thereafter coupled, if necessary, with a cross-option agreement."
  56. On that basis he said that the solicitors would have been all the more concerned to hear in mid January 2007 that Mr Swain was to undergo a heart operation in mid-February.
  57. He also observed that the advice which he had described would have been straightforward private client tax advice for a solicitor competent in such matters. The exchange of put and call options would be more sophisticated but was well-trodden ground for a law firm which undertakes many commercial transactions.
  58. Mrs Swain Mason in her witness statement, having read a draft of that report, said that she had no doubt that Mr Swain would have asked for such advice, if made aware of its possible significance, and would have followed it. Deferral of the MBO would have been agreed. Options might not have been required, but if they were on either side they would have been agreed.
  59. Mr Farley's report, therefore, puts the matter in a different light from how the point was perceived on 24 November, because it makes it clear that the deferral of the MBO would have had to have been until after 5 April 2007. It is plain from the transcript of the hearing on 24 November that neither Mr Simpson nor the judge supposed that the case which the amendment represented involved a deferral to after 5 April 2007. That is shown not only by the absence of any reference to a deferral for that period but also by references such as those that I have quoted at paragraph [28] above to deferral, if at all, for a week or two. Nor did Mr Mathew correct that assumption.
  60. Before us, Mr Mathew frankly accepted that, when he put forward the re-amendment and sought permission for it on 24 November he did not think it would have been necessary to defer the MBO until the following tax year. He had in mind that it is possible in certain circumstances to change tax residence within a tax year, under what is called the split year concession, and he therefore envisaged Mr Swain being advised to change his residence at once, and being able to do so without waiting until the next tax year. On reflection he realised that this would not have been open to Mr Swain because it would have been inconsistent with the clearance letter. It would therefore have jeopardised the HMRC clearance, and thereby would have opened up many other adverse tax consequences of the MBO.
  61. He submitted to us that the course of action suggested by Mr Farley is consistent with the terms of paragraph 8.1A.3, and that therefore although there was a change in detail it was not fundamental to the Claimants' case and Mr Simpson was wrong to argue that Mr Farley's report represented another new case put forward by the Claimants.
  62. However, I anticipate matters, and must return to the second hearing before the judge. The Defendants applied for the amendment to be disallowed. They also applied for summary judgment on the original case. Those applications came on for hearing on 10 December. Before then some further exchanges had taken place between the solicitors and Counsel. The Defendants took the position that Mr Farley's report did represent a new case, of deferring the MBO beyond 5 April 2007, whereas the re-amended case had been of no deferral of the MBO at all. They sought to obtain clarification of the Claimants' case as it stood, among other things by asking whether it was correctly represented by paragraph 25 of the judge's judgment given on 6 December (see paragraph [31] above). Mr Simpson sent to Mr Mathew by email, on the afternoon of Sunday 5 December, a reasoned request, of some length and detail, for clarification of the Claimants' case. Mr Mathew responded substantively the next day. He said that, while ceasing to be resident and ordinarily resident in the UK for tax purposes was an essential factor, he accepted that "acquiring this status would take slightly longer than I originally envisaged, given the unavailability of the "split year" concession". He did not accept that it was a different case.
  63. The Defendants' applications came on before the judge on 10 December. Mr Simpson sought to show the judge that the case made on the basis of Mr Farley's report was significantly different from that originally put before the judge, both because of the deferral to April and because the insurance proceeds, which had, he said, been the measure of loss, were not now said to be a relevant factor.
  64. The judge's reaction to this line of argument was that Mr Farley's report made clear to the Defendants the case they had to meet, and they did not need any further pleading on the point. Quite early on in Mr Simpson's submissions the judge said this:
  65. "I'm not going to allow you to play with these kind of pre-CPR games. This case has been at trial twice. At the last hearing you complained about the fact that there was yet another adjournment. What you are doing now, Mr Simpson, you are trying to set this up, for I have no doubt in the event you lose this application, yet another application to the Court of Appeal with a view to adjourning the trial. It is not acceptable."
  66. After some further argument and some submissions from Mr Mathew, the judge said that he would rule against the Defendants' application, and, asked to give a reasoned judgment, he did so off the cuff. In the course of this he also considered the Defendants' application under Part 24, though he had not by then heard any submissions either way on that.
  67. In the course of his judgment he mentioned the fact that, during the original opening, it had appeared to him that Mr Mathew's "case in its original form had difficulties and was unsustainable". Later, he said this about the case as it by then stood:
  68. "In my view, the pleading shows it has a real prospect of success. They only have to show, in my view, that had the advice been given, there would have been a discussion as to what to do with the impending sale. If the sale still had to go ahead on 31 January, then a scheme would have been put in place, namely a put option, which would have simply annexed the deed. It is likely, also, in that eventuality, if there was that urgency, that life insurance would have been taken out as well to cover the tax consequences of Mr Swain dying before the terms of the agreement had run their full course, in the event that that would have meant cover for ten years of loan notes.
    Had the scheme not had an urgency to complete on 31 January - and this is what Mrs Mason says in her latest witness statement, although I have to accept that that is subject to trial, but for the purposes of a part 24 application I am entitled to assume that what she says will be established at trial. She says there would have been a deferral. My recollection, because I do not have the original trial bundle is that one of the buyers had also given evidence to the like effect.
    So, what would have happened is, one way or another, a scheme would have been set up to address the tax consequences. I do not accept that that material has to be pleaded out. What the Defendants need to know is that a scheme, one way or another, would have been arranged and then the evidence of that is proven by Mr Farley's expert report.
    It is clear, in my view, on Mr Farley's two reports and the Re-Amended Particulars of Claim, that the claimants are maintaining two alternative bases, namely one based on the proposition that the scheme would have gone ahead, and the other based on the proposition that the scheme would not have gone ahead and would only have been implemented in the next tax year."
  69. He went on to refer to some principles relevant to an application under Part 24, especially to one made at a very late stage, and to an authority to which he had not previously referred or been referred. I will refer later to the factors relevant to the Part 24 application. I record at this stage that he said that the Part 24 application required an abridgement of time, which he refused to give. In the alternative he said that, on the substance, the re-amended pleading and the fresh evidence showed a case which does have a real prospect of success, so that the striking out application must fail. For much the same reason he said that Defendants' application to disallow the amendment must fail. He concluded by saying this:
  70. "In my judgment, these applications were unnecessary and an abuse of the process of the court, and I will strike them both out and dismiss them for those reasons."
  71. Mr Simpson then pointed out that the judge had not heard any argument on the Part 24 application, and that the new evidence did not relate to the previous pleaded case. The judge's response was "Other evidence supports the existing pleading." The judge then refused permission to appeal on both applications. He then considered consequential matters, and set a new date for the trial of 31 January, with revised directions in the meantime. In his written record of the refusal of permission to appeal, he again described the Defendants' applications as having been an abuse of the process. He said:
  72. "The applications were an abuse as they were designed to try to abort the trial date which had been refixed because they had objected to further delay caused by the granting of the re amendment on the second day of the trial. The application under Part 24 was much too late. There had been 2 trial days (April and November 2010) which were vacated in the teeth of the Defendant's resistance. On neither occasion did they say the Claimants' original case had no prospect of success. This demonstrates that the application was tactical and devoid of merit."
  73. The observation that the Defendants' position was tactical is foreshadowed by what the judge had said in argument, as quoted at paragraph [50] above, about playing games. It seems to me that this comment was altogether unjustified. One might take one view or another about the substance of the Defendants' application, but their application cannot fairly be regarded as having been launched only in order to delay the resumption of the trial.
  74. The Defendants' application under Part 24

  75. The application made by the Defendants under Part 24 for the dismissal of the Claimants' original claim relied in part on the judge's own comments on the lack of substance in the original case, as when on 24 November he said "that case is dead in the water on that claim." In more considered terms he had identified major difficulties with that case in paragraphs 15 to 21 of his judgment given on 6 December 2010. Even on 10 December, earlier in his reasons, he said that it "had difficulties and was unsustainable".
  76. Mr Simpson contended that the Defendants acted properly in not making this application earlier, given that it was only at the outset of the trial that the Defendants' medical evidence was accepted. If they were able to resist the Claimants' application to re-amend, by getting the amendment disallowed, it would be logical and reasonable to apply to have the rest of the case struck out, if the view was correct that it had no reasonable prospect of success. On that footing I have to say that I would not share the judge's view that the application was made too late and that, if it were necessary, time should not be abridged for it to be made. That said, the main issue before us is the amendment, and I will revert to the summary judgment application after I have dealt with the amendment.
  77. The nature of the Claimants' case as re-amended

  78. As I have indicated, the Claimants allege a duty arising from the retainer, either in contract or in tort. There is no difference between the two for present purposes. The duty alleged is to advise Mr Swain as to the Tax Consequences of the MBO in relation to his personal tax position and that of his estate. It is not in dispute that the Defendants gave no such advice. Whether they were under such a duty is very much in issue. If they were, however, it is clear that they were in breach because they did not give the advice.
  79. The next stage in proving the Claimants' case is to prove what a reasonably competent solicitor would have advised, if he had been asked to do so, and then what Mr Swain would have done if he had been given that advice. The trial will be concerned with both of those issues as well as with the issue of the scope and extent of the duty. It will not be concerned with quantification, but that stage is only reached if the Claimants prove the duty, the breach and the steps in the chain of causation.
  80. The original case, based on knowledge of Mr Swain's poor health and in particular the forthcoming operation, was that the hypothetical solicitor would have advised a short deferral, until after the operation. That is a readily understandable case, linked to the specific risk of the operation.
  81. Subject to the argument on the Part 24 application, it is still open to the Claimants to pursue that original case. It is not open to them, without an amendment, to argue that the Defendants were under a duty to warn Mr Swain of the Tax Consequences, so that he should get advice about them, even without reference to his state of health or the operation. That is the effect of the judge's ruling against the Claimants which has not been appealed.
  82. Accordingly, the point of the amendment is to enable the Claimants to argue that the Defendants were under a relevant duty regardless of Mr Swain's state of health. Since the hypothetical advice is not linked to his ill health or to his operation, there is no logic in the hypothetical adviser paying particular regard to the operation. It does, therefore, open up more generally the question how the Tax Consequences might be alleviated or avoided.
  83. Mr Farley's report presents what seems to be a plausible way of approaching that task. It is different in at least one material respect from that which, if Mr Mathew had had to open his application to the judge on 24 November, he would have said, because he then assumed that the change of residence could be achieved quickly, and did not have to wait until the next tax year. If Mr Mathew had been required to spell out in a fuller way the highly compressed text in paragraph 8.1A.3, he would have put it in this way. The solicitor would have advised Mr Swain that it was greatly to his advantage to change his residence for tax purposes before entering into the MBO, that he could do so quite easily and without delay, given his existing way of life and his connection with Thailand, that he should do all that was necessary for that purpose at once and should not enter into the MBO until after he had done so. Having done so he should also (before the MBO) transfer his shares to an offshore company or family trust, which would then be the vendor under the MBO. He should also take steps to adopt a domicile of choice in Thailand as soon as possible. Although he would remain treated as domiciled in the UK for iht purposes for the following three tax years, any risk of iht arising during that period could be covered by insurance. Consistently with Mr Mathew's response to Mr Simpson's request for clarification, he would have said that the advice could be given within a few days of being asked for, and the steps necessary to implement the advice could have been achieved within a few weeks. On that scenario the significance of the reference to put and call options in paragraph 8.1A.3 is not altogether clear, since there would be either no delay, or a very short delay, to the completion of the MBO.
  84. That is not how he would explain the case now. The one significant difference is that the hypothetical adviser would say that the change in residence could not be achieved until the next tax year. Accordingly there would be a delay to the completion of the MBO, not a very long delay but nevertheless one of some ten weeks or so. As Mr Farley pointed out it would be possible to achieve commercial certainty as regards the terms of the MBO while deferring the moment when there was a chargeable disposition, by using mutual options, if need be.
  85. In the passage that I have quoted at paragraph [52] above from the judge's judgment given on 10 December, he said that the pleading embraced both alternative versions of the case. I agree with him as to that. He also said in the same passage that it was enough for the Defendants to know that "a scheme, one way or another, would have been arranged". In that I disagree with him. It is not enough for the Defendants to be told that a scheme would be put in place, without being given sufficient details of what that scheme would be. It is not necessary to set it out in every particular, but the Defendants must have proper notice of the nature of the scheme so that they know what it is they have to meet, and can consider it and prepare to deal with it.
  86. Paragraph 8.1A.3 is very compressed, and the significance of its various elements is not easy to discern. For example, Mr Mathew argued that the passing reference to put and call options shows that it was, or might be, concerned with deferral. I can see how that can be spelled out of it, but this is far from being a proper and clear pleading of the nature of the Claimants' case. The very fact that it can cover advice as to two materially different courses of action, one involving proceeding with the MBO as planned, or with only a brief delay, and the other requiring the MBO to be delayed until after 5 April 2007, shows how unclear and embarrassing the pleading is, and how it fails in its obligation to make clear to the Defendants what the Claimants' case really is. Of course, as Mr Mathew said to us, the reason why it was not as clear as it might have been was that he was drafting under serious time pressure, and blind in the sense of not having an expert's report on which to base his pleaded case. If the judge had taken the more conventional course, of not considering whether to grant permission to amend until he had seen the evidence in support, then the final version of the amendment would not have seen the light of day until Mr Farley's report was available, and not only could it have been clearly consistent with that report but it might well have been set out with greater particularity.
  87. I accept that to grant permission subject to an application to disallow is a possible approach, and that the judge's adoption of that course rather than the more conventional one of seeing the evidence first before granting permission to amend cannot be seen as a proper ground of appeal by itself. The problem in the present case is, as Mr Simpson submitted, that the judge granted permission to amend on a false basis, because the case represented by the amendment, as understood by Mr Simpson and the judge (and, it turns out, by Mr Mathew) on 24 November was different from the case which the Claimants sought to run with the benefit of Mr Farley's report.
  88. Mr Simpson showed us a decision of the Court of Appeal, powerfully constituted by Lord Bingham LCJ, Peter Gibson LJ and Waller LJ, in Worldwide Corporation Ltd v GPT Ltd, [1998] EWCA Civ 1894, decided on 2 December 1998. It seems to me unfortunate and surprising that this case features neither in any report nor in the notes to the White Book. Searches on electronic databases reveal that it was referred to and followed in at least six cases in the Court of Appeal between 1999 and 2004, as well as in a number of first instance decisions. Particularly worthy of note is the endorsement in paragraph 79 of the judgment of Rix LJ in Savings & Investment Bank Ltd v Fincken [2003] EWCA Civ 1630:
  89. "As a postscript I would add that, although decided prior to the introduction of the CPR and concerned with an egregious application to change direction in the course of trial itself, the judgment of this court in Worldwide Corporation Ltd v. GPT Limited contains a full compendium of citation of authorities as at that date which emphasises that, even before the CPR, the older view that amendments should be allowed as of right if they could be compensated in costs without injustice had made way for a view which paid greater regard to all the circumstances which are now summed up in the overriding objective."
  90. The appeal in Worldwide Corporation v GPT Ltd was by the Claimants against the refusal of Moore-Bick J in the Commercial Court to permit amendments to the claim in the first week or so of the trial, amendments prompted not by discovery of some unsuspected evidence or fact but by a re-appraisal by newly instructed Counsel of the merits of the case. It was said that he felt that the case previously pleaded would fail and that only by way of the amendment could the case be put on an arguable basis. Waller LJ gave the judgment of the court, setting out the reasons why the appeal had been dismissed. Mr Stanley Brodie Q.C. for the Claimants relied on observations as to the generous approach of the court to amendments required to enable the true issues between the parties to be resolved, so long as any injustice can be avoided, mainly by terms as to costs: Bowen LJ in Cropper v Smith (1884) 26 Ch. D. 700 at 710-711 is one of the classic statements of this attitude. Another is that of Brett MR in Clarapede & Co v Commercial Union Association (1883) 32 WR 262 at 263. More recent statements include that of Millett LJ in Gale v Superdrug Stores plc [1996] 1 WLR 1089 at 1098 and following. The court in Worldwide Corporation v GPT said this about this attitude:
  91. "We are doubtful whether even applying the principle stated by Bowen LJ, the matter is so straightforward as Mr Brodie would seek to persuade us. But, in addition, in previous eras it was more readily assumed that if the amending party paid his opponent the costs of an adjournment that was sufficient compensation to that opponent. In the modern era it is more readily recognised that in truth the payment of the costs of an adjournment may well not adequately compensate someone who is desirous of being rid of a piece of litigation which has been hanging over his head for some time, and may not adequately compensate him for being totally (and we are afraid there are no better words for it) "mucked about" at the last moment. Furthermore the courts are now much more conscious that in assessing the justice of a particular case the disruption caused to other litigants by last minute adjournments and last minute applications have also to be brought into the scales."
  92. Later in the judgment the court said this under the heading "Approach to last minute amendments":
  93. "Where a party has had many months to consider how he wants to put his case and where it is not by virtue of some new factor appearing from some disclosure only recently made, why, one asks rhetorically, should he be entitled to cause the trial to be delayed so far as his opponent is concerned and why should he be entitled to cause inconvenience to other litigants? The only answer which can be given and which, Mr Brodie has suggested, applies in the instant case is that without the amendment a serious injustice may be done because the new case is the only way the case can be argued, and it raises the true issue between the parties which justice requires should be decided.
    We accept that at the end of the day a balance has to be struck. The court is concerned with doing justice, but justice to all litigants, and thus where a last minute amendment is sought with the consequences indicated, the onus will be a heavy one on the amending party to show the strength of the new case and why justice both to him, his opponent and other litigants requires him to be able to pursue it."
  94. The court also recognised, as I do, the reluctance with which an appellate court will interfere with discretionary case management decisions, perhaps especially those of a trial judge.
  95. As the court said, it is always a question of striking a balance. I would not accept that the court in that case sought to lay down an inflexible rule that a very late amendment to plead a new case, not resulting from some late disclosure or new evidence, can only be justified on the basis that the existing case cannot succeed and the new case is the only arguable way of putting forward the claim. That would be too dogmatic an approach to a question which is always one of balancing the relevant factors. 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.
  96. 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.
  97. The Worldwide Corporation decision was made under the RSC, not the CPR, which only came into force some five months later, but it seems to me that it reflects the tenor of the CPR, which was no doubt in the minds of the judges, who will have been very familiar with the terms of Lord Woolf's reports that led to the reform of the rules. As appears from the passage quoted above from Savings & Investment Bank v Fincken, it has been endorsed as appropriate under the CPR.
  98. The judge was not shown the Worldwide Corporation case on 24 November 2010, as Mr Simpson did not have it in mind then understandably given the very short notice of the point and that it is not noted in the White Book. (He did show it to the judge on 10 December.) He was shown Woods v Chaleff, decided in May 1999, under the CPR, in which Otton LJ and Waller LJ reversed a decision of Gray J to allow an amendment made about a week before trial. Otton LJ made brief observations consistent with what I have quoted from Worldwide Corporation as regard the court's general attitude to late amendments.
  99. In the course of Mr Mathew's submissions to us he said something which I find of particular relevance to this point. To put it in context, he said that he no longer regarded the case as one where the MBO might not have been deferred; he saw it as involving, on whatever basis, a deferral of the MBO, either beyond the operation (on his original case) or beyond 5 April (on his amended case). He said that he took the amended pleading to make out fairly clearly a case of deferral, because of the reference to put and call options. He said at one point that all of paragraph 8.1A could be ignored except for paragraph 8.1A.3 (though he later resiled in part from that). He maintained that paragraph 8.1A.3 was self-sufficient and represented the Claimants' real case (apart from the original ill-health related case, which he sought to maintain). He had no quarrel with any aspect of paragraph 25 of the judge's judgment dated 6 December 2010, though he commented that it was perhaps somewhat elliptical as regards the words "put in place at the same time as the SPA". My own comment on that point is that, if so (and he may well be right), then it arises from the obscure and equivocal nature of his own pleading in paragraph 8.1A.3. He then said that the amended pleading showed the Defendants the new case, and that Mr Farley's report gave greater definition. Then, and as it seems to me very significantly, he said that he accepted that the Defendants should have added more by way of particulars of the arrangements that would have been advised by the hypothetical solicitor. Reverting to that subject when he came to deal in terms with one of the grounds of appeal, he accepted that the case made in the pleading was not sufficiently particularised, but argued that the judge was right to allow it to go forward, to be supported later by Mr Farley's report and potentially by further particulars to be given in the course of preparation for trial. He said that a final version of Mr Farley's report was in preparation, and hinted that this might lead to further particularisation, in itself or by a further pleading. He also indicated that, if the Court of Appeal considered that the judge had gone wrong, and then sought to exercise the discretion itself, he might invite it to do so by reference to an improved version of the pleading as compared with that already before the court.
  100. These comments, not surprisingly, provoked Mr Simpson to intervene at that point and, when he came to make his submissions in reply, to submit that it was far too late for Mr Mathew to contemplate yet another attempt to make good his pleadings.
  101. The judge's decisions to allow the amendment and then not to disallow it

  102. The judge's grant of conditional permission to re-amend on 24 November and his refusal of the Defendants' application to disallow it on 10 December go together, in substance. Both required the exercise of a discretion by the judge. An appellate court can only interfere with such an exercise if the judge has misdirected himself; that is particularly so where the decision is one of case management, as these are, and maybe yet more so when the judge is the trial judge. The judge's reserved judgment on 6 December addressed the relevant issues. The points that he considered include nothing other than relevant topics. In that sense, it cannot be said that there is any relevant matter that he failed to take into account, or that he had regard to any irrelevant matter. He set out his understanding of the amendment, which corresponded with that of Mr Simpson and that of Mr Mathew when drafting the amendment, as well as his view of the original case, and the need for an amendment to rely on a wider case. He referred to the need for supporting evidence, and to his adoption of the course of allowing the amendment conditionally, subject to putting in evidence. As relevant to discretion, he referred to the earlier history of amendment in the case, which he rightly said was relevant but not in itself decisive. He referred to the principles as regards amendment. His reliance on what Peter Gibson LJ said in Cobbold (see paragraph [32] above) is unfortunate, given what had been said in Worldwide Corporation v GPT and other cases, but the judge had not been shown that decision of the Court of Appeal, and had probably seen no more of Cobbold than the passage which he quoted, it being set out in the notes to the White Book.
  103. He then referred to issues of prejudice. He said there was no issue as to compensating the Defendants for costs thrown away. The proceedings were stressful, but for both sides. The adjournment would be fairly short, the new case would not be greatly lengthened, and it was not said for the Defendants that they could not meet the case at the resumed trial. On the other side the Claimants (as he saw it) would otherwise be proceeding to trial on a false and artificial basis, because of the dim view he took of their original case. He also had regard to the substantial size of the claim as a reason for not depriving the Claimants of the ability to put it forward. All of those are relevant factors.
  104. His reasons given on 10 December for refusing to disallow the amendment are more open to criticism, though it is of course necessary to bear in mind that this judgment was given off the cuff. One problem is that he gave judgment on both the disallowance application and the Part 24 application without having heard argument on the Part 24 application. He analysed paragraph 8.1A.3 as including both a deferral and a non-deferral case, which is right as a matter of language but not, in my judgment, satisfactory as a matter of pleading, nor did he attach any particular importance to the change of tack on the part of Mr Mathew. He took what seems to me to be the wrong view as to the amount of detail that the Defendants are entitled to be given in the pleading as to the nature of the scheme which the hypothetical solicitor would have advised. He then dealt with the Part 24 application, and said that the Defendants knew precisely what case they would have to meet at the resumed trial. The strength of his adverse view of the Defendants' position is shown by his having referred to their applications as an abuse of the process of the court, not only in the course of his judgment but also when writing down his reasons for refusing permission to appeal. Then when Mr Simpson came to attempt to argue the Part 24 application, he said that the original case was supported by "other evidence", unspecified, which contrasts oddly, to say the least, with his having described it, only 10 pages earlier in the transcript, as "unsustainable".
  105. It seems to me that it would have been a great deal better if the judge had required the amendment to be supported by evidence before he considered whether to allow it. Among other things, that would have given Mr Mathew more time to think through the implications of his new case, as well as having the benefit of the expert's report on the point, so that the amendment would have been able to be put into a more satisfactory state. Then the judge would not have found himself grating permission on one understanding of the case made, only for it to turn out that the expert supported a different version. By itself, using the alternative of granting permission conditionally, subject to disallowance, would not be a reason for setting aside the judge's decision. One factor that seems to me to vitiate the judge's first decision is that it was made on a false basis, in the sense that, as it turned out, the judge's understanding of the new case to be made was different from that supported by the expert report and therefore now advanced by the Claimants. The fact that, as a matter of a literal reading, paragraph 8.1A.3 covers both versions does not help the Claimants. It only shows how unsatisfactory the pleading is.
  106. I also consider that the judge was too relaxed as to what the Claimants ought to have shown. They ought to have put forward a significantly clearer, fuller and more precise pleading, one which immediately satisfied all the obligations on a party as to proper pleading, without any need to be supplemented or clarified by evidence or by further information. They ought also to have supported their case for justifying the amendment with evidence as to why the application was made at this extraordinarily late stage.
  107. Of course, Mr Mathew sought to argue before the judge that the case of a duty to advise not dependent on knowledge of ill health and the operation was open to the Claimants in any event. However, it seems to me that the judge was quite right to rule that this case was not open to the Claimants on the pleadings. Although the judge introduced into the debate various ideas of his own during argument on 23 November, the basic point was that the case made until then was dependent on knowledge of the operation, but even before any intervention by the judge Mr Mathew wanted to argue a wider case. The need for an amendment therefore did not result from anything the judge said other than his ruling that the wider case was not yet pleaded. The Claimants' advisers ought to have foreseen that outcome.
  108. In this context it is relevant that the Claimants had already sought to amend in a series of different ways in April 2010, having at that stage prepared for trial and therefore, one must suppose, having focussed on the true nature of the case that they wished to advance. No explanation is advanced as to why they did not identify this point at that stage.
  109. Since the judge did not have the benefit of the Worldwide Corporation case, nor of any of the more recent cases in which it has been followed, it is understandable that he should not have required the Claimants to justify more strongly the lateness of their application. His reliance on what Peter Gibson LJ said in Cobbold was, in my judgment, mistaken and wrong in law, though understandable because of the limited citation to him. The quotation from Cobbold in the notes to the White Book is accurate, but reference to the judgment shows that it was much more appropriate in that case to permit the late amendment. For one thing, Greenwich had provided the material on which the new case was made to the tenant's solicitors months beforehand, and had made it clear well in advance that they intended to run the new case. For another, in the end it was not necessary to adjourn the trial date as a result of the amendment. Accordingly, while the statement quoted from Cobbold is entirely proper in itself, it does not provide sure guidance in a case such as this where the amendment had not been prepared for well in advance but came out of the blue, and where permitting the amendment to be made did require the trial to be adjourned. In such a case Worldwide Corporation v GPT is far more relevant, and it is a great pity that the judge did not have the benefit of it on 24 November. Even apart from that, however, it seems to me that the judge was wrong to allow the pleading to go forward with the new paragraph 8.1A.3, both because it is not clear enough or full enough in itself to show the Defendants what the case is that they have to meet, and because, though not appreciated at the time, it was equivocal and therefore embarrassing and unsatisfactory as to the case that was to be put forward.
  110. As for the later judgment, again it seems to me that the judge took too relaxed a view as to the adequacy of the pleading. He was right to analyse it as covering both a deferral and a non-deferral case, but he was wrong to regard it as a satisfactory pleading in the light of that. I do not understand why he considered that the Defendants' application, for which he had provided, was not only unjustified but an abuse of the process of the court (not a point which Mr Mathew had made, or that he supported, at any rate in his oral submissions to this court).
  111. For those reasons it seems to me that the judge's decisions on the amendment were the product of misdirections, both as to the correct approach of the court to a late amendment, and by taking too relaxed a view of the adequacy of the pleading in itself.
  112. It follows that this court must itself consider whether to allow the Claimants to re-amend their pleading to raise the wider case of a duty not dependent on knowledge of Mr Swain's ill health and his forthcoming operation.
  113. The application for summary judgment on the original case

  114. Before I consider the re-amendment, I must first deal with the Defendants' other appeal, against the judge's refusal to dismiss the originally pleaded case. This seems to have been prompted, as much as anything, by the judge's dismissive comments about the original case in argument on 24 November ("dead in the water"), and in his judgment of 6 December ("major difficulties"). His description of it as unsustainable, early in his judgment on 10 December, is consistent with that. It is clear that the Defendants' expert medical evidence, accepted by the Claimants, and the judge's own medical experience were relevant to that.
  115. Mr Mathew submitted to us that, on his case, the expert evidence and the true objective view of the risks of the operation were irrelevant. What mattered was, first, Mr Swain's view of his prospects in relation to the operation, and secondly what view the Defendants would or ought to have taken of its seriousness. Neither Mr Swain nor the Defendants had the benefit of the expert evidence now before the court, or of the judge's experience. Therefore, the expert evidence was a red herring, and the strength of the Claimants' case was not affected by their acceptance of that evidence.
  116. For my part, I would accept that analysis of the original case as showing at least an arguable basis for putting it forward. Whether it will succeed is another matter, and the judge may be right to say that it faces difficulties. It seem to me that the judge was right to dismiss this application, though plainly he ought to have heard argument on it before doing so, and his description of it as an abuse of the process is not justified. Not least, it fails to take into account the extent to which that application relied on his own comments about the strength of the original case. It makes no difference in the end but it also seems to me that the judge was wrong to reject the application as not properly before the court because of non-compliance with the timetable laid down under Part 24. That is appropriate if the application is made (as usual) early in the case. Made at this late stage, if properly made at all, there is no reason for a Part 24 application to satisfy those time requirements, so long as the opponent has proper notice of the application and of how it is said to be justified, and, if necessary, has time to respond.
  117. Bias

  118. Mr Simpson applied to add a further ground of appeal in each appeal, namely that there was a real possibility or real danger that the judge was biased against the Defendants in arriving at his decisions. If apparent bias were made out, then the judge's decisions could not stand, and this court would need to decide the applications itself, if possible. The test for bias, in a case of this kind, can be taken from R v Gough [1993] AC 646, where Lord Goff said this at page 670:
  119. "Accordingly, having ascertained the relevant circumstances, the court should ask itself whether, having regard to those circumstances, there was a real danger of bias on the part of the relevant member of the tribunal in question, in the sense that he might unfairly regard (or have unfairly regarded) with favour, or disfavour, the case of a party to the issue under consideration by him;"
  120. As I have said already, I regard the judge's exercise of his discretion as regards amendment as legally flawed, so that the court will have to exercise the discretion again on that point. Conversely, I regard the judge's decision on the Part 24 application as correct in substance (even though not in the way he went about it) so that, if I had to reconsider that application, I would come to the same conclusion as he did. Therefore, it does not make any difference of substance as to whether the Defendants can make out a case of bias. However, given the sensitivity of the point, I will deal with it.
  121. The factors relied on by the Defendants in support of this case were, first, that the judge wrongly entered into the arena, suggesting to Mr Mathew a new case based on his own experience at the Bar in similar circumstances. The second point was his finding that the Defendants' applications with which he dealt on 10 December were an abuse of the process. This is said to have been so manifestly unfounded as to lead to the conclusion of apparent bias. Thirdly, his finding that the original case had a real prospect of success, despite his having described it as "unsustainable" earlier in the same judgment, was irrational and should lead to the same conclusion.
  122. I start with the judge's interventions in the course of argument on 23 November based on his experience of what he regarded as similar cases at the Bar, when he was trying to work out the implications of the case which Mr Mathew was opening to him. In a case alleging professional negligence, if the issue is as to what a hypothetical legal adviser would have advised should be done, it is not only impossible but also wrong for a judge to attempt to disregard what he has gained from his own experience in practice. However, it is also important that care should be taken by the judge to make it clear to what extent he does take into account any particular experience, so that it may be commented on by witnesses and by advocates as necessary.
  123. So far as the judge's suggestion of the use of insurance is concerned, it turned out to be relevant only to a limited aspect of the case, namely the risk of iht on non-UK assets during the three tax years after a change of actual domicile and before the change of deemed domicile for iht purposes. It was not at the heart of the case. It was also a fairly obvious suggestion to be made in the context of estate planning in the relevant circumstances. The real issue is as to the adequacy of the pleading, not as to the specific content of the underlying case. Mr Simpson's legitimate complaint is that the judge was too relaxed about the degree of detail to which the Claimants should go in their pleading; it is not that he threw out an idea, together with what prompted him to mention it, in the course of argument.
  124. On the other two points, it is unfortunate that the strength of the judge's feelings about the Defendants' applications should have led him, first to adjudicate on the Part 24 application without having heard argument on it, secondly to say, when submissions were put to him, that the case was supported by "other evidence" when he had previously described it as unsustainable, and thirdly to describe both applications as an abuse of the process, not only in his oral judgment but also in his written reasons for refusing permission to appeal. The applications were not an abuse of process, on any basis, whether or not they were justified.
  125. However, I do not regard these comments as amounting to material which would make the reasonable informed observer suppose that there was a real danger that the judge was biased against the Defendants, as opposed to being someone who tends to express himself robustly. I would prefer that he had not expressed himself in these ways, and I can understand that the Defendants would feel aggrieved at the comments, but I do not consider that these observations get anywhere near satisfying the test for bias.
  126. For those reasons I would not give permission to amend the grounds of appeal to rely on bias, both because it is not necessary and also because the case is not made out.
  127. Should the Claimants be given permission to re-amend?

  128. Having held that the judge's exercise of the discretion was based on errors of law, as to the correct approach both to a very late amendment and to the degree of detail required for a pleading of this kind, it is up to the Court of Appeal to decide whether, even so, permission should have been granted for the re-amendment. That is an exercise which needs to be conducted as at the date of the judge's own decision. Of course we have two decisions in the present case, one on 24 November and the other on 10 December. Strictly speaking each should be reviewed as at its own date.
  129. We had submissions as to the relevance or otherwise of what has happened since the decisions. In particular, is it right to take into account the fact that, because of the judge's orders, the parties have been preparing for trial as best they can on the basis of the re-amended pleading? Mr Mathew argued that it was, and that the court should take a practical and realistic view of the position of the parties, and ought not to make an order resulting in expenditure already incurred being rendered futile, and effort incurred being thrown away. Mr Simpson argued to the contrary.
  130. No authority was cited to us on this point, and I am not aware of any. The correct approach might differ according to the kind of case in which it arises. For example, it would be easier to justify looking at later events if the issue were as to a continuing interim injunction, applying to an ongoing situation. Relevant legislation may also affect the position. In principle, however, it seems to me that the appellate court ought to approach the exercise of the discretion on the basis of the material that was before the judge, and normally nothing else. Later events, or material coming to light or put in evidence later, might be relevant, for example to show that the judge was under a misapprehension as to the position as it was when he made his decision. But if the court is to examine the position as it has come to be by the time of the hearing of the appeal, then the party seeking to uphold what is, on its face, a wrong decision by the first instance judge may be at an unjustified advantage by being able to rely on what has happened as a result of an order which ought not to have been made as it was. If the court considers that, even though the judge misdirected himself, it would be right to make the same order as at that date, by reference to the same material as the judge saw, then it is appropriate to dismiss the appeal. If it takes the view that the order ought not to have been made at that time and on that evidence, then it seems to me that the appellant ought not to have his task rendered the more difficult because of reliance by the respondent or the court on what has been done, as a matter of obligation, under the order in the meantime.
  131. Accordingly, I will examine the position first as it stood on 24 November, on the Claimants' application for permission to re-amend in the terms in which the judge gave permission, including in particular paragraph 8.1A.3.
  132. The matters which need to be considered for this purpose include the terms of the amendment, the previous history as regards amendment, including the sequence of events in April 2010 which led to the first amendments, the absence of any evidence explaining why the re-amendment was sought to be made so very late, and the various factors relevant to prejudice to each side. What the judge said about prejudice was fair, apart from his approaching the case on the footing that the Claimant's original case could not succeed, so that the amendment offered them the only realistic way of putting their case. I disagree on that point.
  133. For my part, however, I would exercise the discretion by refusing permission to make the amendment which the judge was asked to allow. I would do so for two different reasons.
  134. First, as Worldwide Corporation v GPT shows, there is a heavy burden on a party who seeks to raise a new and significantly different case so late as the opening of the trial. The party applying to amend needs to show why the change is sought so late and was not sought earlier. In the present case, it was not the judge's comments on the first day of the trial that led Mr Mathew to put his wider case. He was going to do that anyway, as is apparent from the first few pages of the transcript. That may have been prompted by his clients' then recent concession as to the expert medical evidence. But even by the time of the first trial date, in April 2010, the Claimants were clearly having difficulties as regards medical evidence. The date for exchange of expert reports on the medical issues was long past, but the Claimants had not disclosed any such report. They said in July 2009 (well before the date for exchange) that they had instructed a doctor from Papworth hospital. Then in February 2010 they said they would use the doctor who had treated Mr Swain. By April 2010, it seems, they had no report, and they must have realised that they would have great difficulty in contradicting Dr Fynn's report which they had had since October 2009. Accordingly, one question which should have been addressed is why the eventual wider case, not related to Mr Swan's operation and ill health, was not considered in April 2010 when several attempts were made to reformulate the pleaded case. That is one factor which seems to me to point strongly towards a refusal of permission for the very late amendment.
  135. The other, which I regard as even stronger, is that the text of the amended pleading is so unsatisfactory. As later became clear, it is embarrassing, in that it includes two significantly different versions of what the hypothetical solicitor would have advised. It is in any event too compressed so that it is very difficult to work out, just by reading it, what the case is. In my judgment Mr Mathew was right to accept in argument that the pleading was not in proper form. I regard that as fatal to his submission that the Court of Appeal should hold that the order made by the judge was the right order to be made, even if for different reasons.
  136. After we had reserved judgment, Mr Mathew submitted a revised draft pleading to us, as a better text by reference to which he invited us to consider the exercise of our discretion. In place of paragraphs 8.1A.1.1 to 3, and 8.1A.3, he proposed a much fuller text, set out in paragraphs 8.1B to 8.1D. I set this text out in an appendix to this judgment, so as to be compared with paragraph 8.1A.3 as set out at paragraph [25] above.
  137. It may be that, if Mr Mathew had put a text of this kind before the judge on 24 November then, subject to the point I have already made as to explaining why the application was made so late, it could have been appropriate for the judge to allow the amendment, although Mr Simpson does not accept that it satisfies the requirements for a proper pleading. But Mr Mathew did not do so, and he could not do so, because he did not then have the benefit of Mr Farley's advice, and he himself then thought that the change of residence could take place without waiting for the next tax year. I would refuse to permit the Claimants to re-amend in the terms permitted by the judge, because the text of that amendment is so unsatisfactory, and I would refuse permission to re-amend in the terms now proposed because it is far too late (even if it was not on 24 November), and also (in both cases) because the Claimants did not discharge the burden of justifying so very late a change of case as identified in Worldwide Corporation v GPT.
  138. In my judgment the right order for the judge to have made on 24 November was to refuse permission to re-amend the Particulars of Claim, and to have proceeded to hear the case on the footing of the original pleading, for which the parties must have been prepared.
  139. The position is no different if I consider the order made on 10 December dismissing the disallowance application. In my judgment the judge ought to have disallowed the re-amendment, even assuming (contrary to my earlier conclusion) that it was proper for him to have allowed it in the first place. He should have disallowed it because by then it was clear that the pleading was embarrassing, which had not been appreciated on the earlier occasion, and it was therefore all the more clear that it ought not to have been allowed.
  140. Disposition

  141. The result is that, in my judgment, the case should proceed to trial on the same basis as it stood on 23 November, but in the light of the judge's ruling, which I consider to be correct and has in any event not been challenged, that the wider case, not linked to Mr Swain's ill health and his operation, is not open to the Claimants. That means that a great deal of time and effort expended since that day will have been wasted. That is unfortunate, but it seems to me that neither side ought to have been expected or required to undertake that effort, and that it would be wrong to uphold the judge's order only in order to justify what ought not to have had to have been done. It will also have most unfortunate consequences as regards costs.
  142. For the reasons given above, I would allow the Defendants' appeals against the judge's order on 24 November 2010 permitting the amendments to be made, and his order on 10 December refusing to disallow the amendments. I would set those orders aside and direct that the case should proceed on the basis of the original pleading, without those re-amendments. I would dismiss the appeal against the order refusing to strike out the originally pleaded case.
  143. That leaves the Claimants with their original case, linked to knowledge of the operation. The judge has expressed strong views as to the prospects of that claim, as I have mentioned above. He has also expressed strong views unfavourable to the Defendants, though not in relation to this aspect of the case. In those circumstances it seems to me plain that when the trial starts again, it should be heard by a different judge. I would leave in place the direction that the trial should start again on (or at any rate as soon as possible after) 31 January 2011, but as it will be limited to the original claim, the time estimate should presumably be no longer than the seven days allowed on the original time estimate. The parties' legal representatives must agree a revised time estimate and inform the Chancery Division listing office of it as soon as possible.
  144. If any other pre-trial case management directions are needed in the light of the limited scope of the case as it will proceed, they should be agreed between the parties, failing which the parties can apply for directions to a judge of the Chancery Division, other than Peter Smith J.
  145. Lord Justice Elias

  146. I agree that the orders to be made on the appeals and applications before us should be as indicated by Lloyd LJ, for the reasons set out in his judgment.
  147. Lord Justice Patten

  148. I also agree.
  149. Appendix

    The relevant text of the latest re-draft of the re-amendment of the Particulars of Claim (see paragraph [108] above).

    8.1B The further advice which the Defendants would have given to Mr Swain and the Daughters would have been advice on how to arrange Mr Swain's affairs such as to allow Mr Swain and/or the Claimants to avoid or substantially reduce the payment of any CGT or IhT, regardless of when Mr Swain died. In all likelihood, such advice would have been as follows:

    a) Not to complete the MBO until Mr Swain had ceased to be both resident and ordinarily resident for tax purposes in the UK;

    b) Of the steps Mr Swain should take to cease to be both resident, ordinarily resident, and domiciled in the UK/England and Wales both for tax purposes and at common law;

    c) That if such steps were followed prior to 6 April 2007, Mr Swain would cease to be both resident and ordinarily resident in the UK from 6 April 2007;

    d) Accordingly, for Mr Swain and the Daughters to negotiate a deferral of the scheduled or likely completion date of the MBO until after 6 April 2007;

    e) If any risk was perceived that one or other party to the MBO might seek to alter the terms of the MBO pending such deferred completion, to negotiate and grant 'put' and/or 'call' options between the parties, having sought any necessary assurances from the Bank; ensuring the beneficial ownership of Mr Swain's shares remained vested in him;

    f) To set up a company, incorporated and resident for tax purposes off-shore, owned by Mr Swain, before completion of the MBO;

    g) To consider transferring Mr Swain's shares to the off-shore company immediately before completion, subject to the options if any, to assist with any arrangement to mitigate Thai tax;

    h) Having completed the MBO, immediately to invest as much of the proceeds as possible in 'exempt gilts' (and possibly to borrow so far as possible against the security of the loan-notes and invest the proceeds);

    i) Alternatively, having completed the MBO, to transfer that part of the consideration for the sale of Mr Swain's shares as consists loan notes to the off-shore company (if not already vested therein);

    j) Prior to completion of the MBO, to investigate the availability of life insurance cover, in an amount equal to the value of the loan notes which could not be invested in 'exempt gilts', to come into effect immediately upon completion for the period until 6 April 2010 (when Mr Swain would ceased to be deemed to be domiciled in England and Wales for tax purposes), and carefully to consider taking out such insurance if available.

    8.1C Mr Swain and the Daughters would have accepted and followed such advice.

    8.1D As a result the Tax Consequences would have been avoided, such that no CGT or IhT would have been payable or borne by Mr Swain or the Claimants on the value of the shares (whether because Mr Swain would have been possessed of his shares when he died on 17 February 2007 or otherwise). Credit will be given for the likely cost of the advice being provided by the Defendant, and for such of the costs of implementing the advice as would have been incurred before Mr Swain's death.

    (If Mr Swain had not died when he did on 17 February 2007, but had survived until after completion of the MBO, no CGT would have been payable on completion or otherwise. IhT relating to the value of the shares would only have been payable if Mr Swain had died before 6 April 2010, and then only on such of the proceeds of the shares as had not been invested in 'exempt gilts'. Such IhT would be offset by the proceeds of the life assurance, if taken out.)


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