Out with the Old, Stick with the Old: Amending Statements of Case

Articles
09 Sep 2021

Sofer v Swissindependent Trustees SA [2021] EWHC 2196 (Ch)

03 August 2021

Background

This application arose in a claim in breach of trust issued on 25 September 2018 in respect of a trust called the ‘Puyol Trust’; one of three linked Trusts (the others being the ‘Gabri Trust’ and the ‘Xavi Trust’) settled by the Claimant’s father (‘Hyman Sofer’) in 2006 and in respect of which the Defendant was Trustee.

One of the key issues in dispute between the parties was the characterisation of payments totalling over USD 61.5 million made to Hyman Sofer between 2006 and 2016, which comprised the greater part of the trust assets.  The Defendant’s position was: (i) that these were loans permitted by the terms of the trust; and (ii) that Claimant had full knowledge of the trust structure and the Claimant’s own interest under them when he signed a Deed of Indemnity in favour of the Defendant executed in September 2012.  The Claimant, on the other hand, asserted that the payments were made in breach of trust.  He therefore sought in the proceedings reinstatement of the sums paid, together with interest.

In December 2018, before any Defence had been filed, the Defendant issued an application for strike out.  As part of the Claimant’s opposition to that application, the Claimant made a witness statement dated 11 April 2019, paragraph 17 of which was in the following terms:

The first time that I had any knowledge of the trust structure was after my father died in 2016 and only after my lawyers examined what limited documentation that was available to them. I had never heard of the names of the four trusts before that time.

On, 18 April 2019, a corrective witness statement was made, which referred to paragraph 17 of the earlier statement:

…I appreciate that this wording may be slightly misleading. To clarify, I first heard of the names of the four trusts in 2012, in the circumstances of the signing of the Deeds of Indemnity…However, at the time I did not appreciate what the names referred to as I associated them with the names of famous football players. As trust names they meant nothing to me and I was not aware that any of them were intended to be ‘my trust’. It was not until after my father’s death and the involvement of the lawyers in 2016 that I was able to appreciate the meaning of the names Gabri, Xavi, and Puyol in the context of the trusts.”

Judgment acceding to the application for strike out was given in August 2019.  By a judgment handed down on 5 June 2020, the Court of Appeal allowed the Claimant’s appeal and set aside the Order striking out the claim.  Further statements of case were subsequently filed and served.

By the present application, issued on 26 July 2021, the Claimant sought an order for permission to re-amend his Amended Reply and Defence to Counterclaim, by adding to paragraph 11(2) of the Amended Reply by adding in the words which are underlined below:

“11. As to paragraph 33:

[…]
(2) The Claimant first heard of the names of the four trusts when he signed the said Deeds of Indemnity, but at the time he did not appreciate what the names referred to; he merely associated them with the names of famous football players. Save as aforesaid, the first time that the Claimant had any knowledge of the trust structure – that is, awareness of the essential terms of the trusts (including in particular clauses [permitting loans to be made to beneficiaries])), the corpus of the trusts, and how the trusts related to each other – was after Hyman Sofer died on 8 July 2016 and then only after the Claimant’s lawyers examined what limited documentation was available to them.”

The application was opposed by the Defendant on, essentially, on two linked grounds:

  1. the amendment had no real prospect of success.
  2. it would be an abuse of process to permit the amendment to be made (and verified by a statement of truth), because, as demonstrated by numerous comtemporaneous documents, the allegation was not true.

The Judgment

The Judge (HHJ Paul Matthews, sitting as a Judge of the High Court) noted that the proposed amendments (as underlined above) had been “grafted onto” an existing statement.  At [26], the Judge considered that “the substantive effect” of the proposed amendments “if permitted, would be to reduce the issues between the parties rather than to increase them.”

All of the authorities on amendment, as recently considered in SPI North Ltd v Swiss Post International (UK) Ltd [2019] EWHC 2004(Ch) and in paragraph 17.3.6 of the White Book, however, concern amendments that either add a new claim, or at least a fresh allegation to an existing claim.  Hence, the legal test to be applied on an opposed application to amend a statement of case is the same as that applied on an application for summary judgment: whether the proposed new claim has a real, rather than a ‘fanciful,’ prospect of success.

The Judge considered the problem, however, of applying such test to the present case to be that the substance of the proposed amendments was a retreat from a previous position (i.e., an admission that he had no prospect of success on what was previously alleged). The ‘real prospect of success’ test could not be applied to such amendments, which comprised, not a new claim or an allegation, but “what is in effect being abandoned.”  What the Defendant really meant in saying that the amendment has no real prospect of success, was “what is left after parts have been abandoned does not satisfy the real prospect test.”  The Judge considered that this was the wrong approach to the problem, as “what is left was always there, and no permission is needed from the court to leave it there.”

In substance, this was a reduction in the scope of the claim, rather than an extension by way of adding a new claim or a fresh allegation.  The Judge therefore considered it wrong to apply the test of ‘real prospects’ to either the part being abandoned or to that part being retained.

The second ground of opposition could be disposed of in the same way: the original statement of truth for the reply covered the general terms in which the original allegation had been made.  Hence, the new statement of truth would cover the excising of some aspects of those allegations.  Accordingly, it could not be an abuse of process for a party to seek to remove parts of its claim it no longer wished to make.

Permission was therefore granted, with HHJ Paul Matthews noting that the application was made early on in the proceedings, and that it was “in everyone’s interest that the trial of this claim proceeds to deal only with what is really in dispute between the parties.”

Commentary

This case serves as a useful reminder that it is the substance of a proposed amendment, rather than its form, that is subject to the well-known test for an opposed application to amend.  Where the substance of the proposed amendment does not seek to add a new claim or make a fresh allegation, the test that the amendments enjoy a ‘real prospect of success’ cannot logically apply.  This is so, irrespective of the form of the amendment: in the words of the Judge, at [34]: “the form of the claim and of the amendment do not trump the substance.”

Does this decision mean, therefore, that permission to amend a statement of case will always be granted where the amendment reduces rather than adds to the issues in dispute? HHJ Paul Matthews did not go that far in his judgment, but that seems to be the logical consequence of his decision that the real prospect test should not be applied. It is difficult to imagine any circumstance in which a party will not be allowed to amend their statement of case to retreat from allegations previously made. Irrespective of the stage at which the application to amend is made, it is likely always to be in the interests of all parties (and the Court) for a party to be allowed to narrow the issues formally in dispute.

It is worth noting the Court’s allusion at the very end of the judgment to the rules on discontinuance, by which a party can, as of right (save in very limited circumstances), discontinue their claim or part of it. There was no argument that the amendment here constituted a discontinuance, but in light of those rules, it would be hard for a Court to justify refusing an analogous application to amend by a party seeking to abandon allegations previously advanced.

How then should a party faced with an amended (reduced) claim that does not meet the summary judgment test proceed? HHJ Paul Matthews’s answer was that an application should be made for reverse summary judgment. However, this may not be a complete solution, in light of developing jurisprudence as to the proper scope of a summary judgment application (see here). A party faced with a reduced statement of case that abandons a single issue that cannot be characterised as a “component of a claim” may have no effective way to oppose the amendment, with their only remedy being to make costs submissions at the appropriate time.


The author’s commentary on the Court of Appeal’s decision on the strike-out application can be found here.

Author

Simon Kerry

Call: 2012

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