Leeds & Holbeck Building Society v Ellis (t/a Mark Ellis & Co)

An amendment to pleadings does not introduce a new fraud claim merely because it alleges that facts amounted to a fraudulent scheme and that the defendant knew of them. The pleading must be construed as a whole and in context. Where its substance remains an allegation of negligence, namely failure to consider and investigate facts suggesting wrongdoing, the amendment may remain within the existing cause of action. Allegations that transactions were inexplicable or involved the channelling of funds may identify matters requiring explanation without themselves alleging fraud. An appellate court should also defer to the trial judge’s assessment of the effect of a late amendment on the fair conduct of a trial.

The claimant building society sued its solicitor for negligence and breach of contract arising from mortgage transactions undertaken in 1989. During the part-heard trial, the claimant obtained leave to amend its statement of claim to plead further details of six antecedent transactions and to allege that the transactions together amounted to a fraudulent scheme known to the solicitor.

The defendant challenged the amendment on the grounds that it introduced a new fraud cause of action, wholly new factual allegations, and an impermissibly late amendment. His Honour Judge Behrens allowed the amendment and adjourned the trial. The central issues were whether the amended pleading alleged fraud, whether it introduced a new cause of action, and whether the judge had properly exercised his case-management discretion.

1. Appeal dismissed. Permission to appeal was granted, but the orders allowing the amendment and managing the continuation of the trial were upheld.
2. The amended pleading, construed as a whole and in the context in which it arose, remained a negligence case. Its substance was an allegation that the solicitor failed to consider the implications of known facts, draw appropriate inferences, correlate the antecedent transactions with the instant transactions, and inform the building society or cease acting.
3. The words alleging that the defendant knew of the fraudulent scheme were inelegant but did not convert the pleading into an allegation that he intentionally participated in fraud. The claimant’s proposed clarification, referring instead to what the defendant knew or ought to have known and the inferences he ought to have drawn, confirmed the proper character of the claim.
4. Words such as “channelling”, “purported” and “inexplicably” were signposts to matters calling for explanation and investigation. They did not, without more, constitute an allegation of fraud. The distinction discussed by Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 was therefore material to the pleading issue, but the present pleading had to be determined on its own construction.
5. The further particulars of the antecedent transactions elaborated facts already sufficiently alluded to in the original pleading. They did not introduce a fresh cause of action, so the court had jurisdiction to allow the amendment.
6. The lateness of the application and the inconvenience caused to the defendant were matters primarily for the trial judge, who was best placed to assess their effect on the fair conduct of the trial. No error in the exercise of case-management discretion was shown.

• Court of Appeal (Civil Division): Permission to appeal granted; appeal dismissed. The orders of His Honour Judge Behrens allowing amendment, fixing a case management conference, and directing continuation of the part-heard trial were upheld.
• Leeds District Registry: His Honour Judge Behrens, sitting as a deputy judge of the Chancery Division, granted leave to amend the statement of claim and made consequential case-management directions.