Morris & Ors v Bank of America & National Trust Savings Association & Ors

An appellate court will ordinarily interfere with a trial judge’s case-management decision only in exceptional circumstances. Intervention is justified, however, where a fundamental misunderstanding of the existing pleaded case causes the judge to treat clarifying amendments as a new case and thereby prevents a party from advancing a case already implicit in its pleadings.

After setting aside such an order, the appropriate course will usually be to remit the amendment application to the trial judge. The judge remains best placed to make the case-management decision once the pleaded case and the effect of the proposed amendments are correctly understood.

The joint liquidators of BCCI companies sought relief under Insolvency Act 1986, section 213 against Bank of America and related companies for alleged knowing participation in fraudulent trading.

Lloyd J, managing the complex proceedings in the Chancery Division, permitted only limited re-amendments to the liquidators’ points of claim and reply. He refused allegations concerning nomineeship in the 1977 to 1979 rights issues, considering that they introduced a new case.

The liquidators sought permission to appeal. The central question was whether those amendments merely made explicit an existing allegation that the later rights issues introduced no real capital, or advanced a new case.

1. Permission to appeal was granted and the appeal was allowed unanimously. Chadwick LJ, with whom Hale LJ and Simon Brown LJ agreed, held that appellate intervention in case-management decisions is rare, particularly where the trial judge has acquired detailed knowledge of complex litigation. That restraint did not prevent intervention where the decision rested on a fundamental misunderstanding of the pleaded case.

2. The existing points of claim alleged that, despite the purported capital increases between 1972 and June 1980, the only real capital was that contributed by the BankAmerica group. That allegation necessarily encompassed the proposition that no real capital had been introduced through the 1977, 1978 and 1979 rights issues. The proposed amendments to the relevant paragraphs therefore made that existing case explicit; they did not introduce a new allegation of fraudulent trading.

3. The judge’s contrary view materially affected his treatment of the proposed amendments to the fraudulent-trading and knowledge allegations. His order had the wider and impermissible effect of preventing the liquidators from advancing a case already implicit in their pleadings. Paragraph 1 of the order of 21 December 2001 was accordingly set aside.

4. The Court did not itself determine which amendments should be allowed. Permission to amend remains a case-management decision, and the trial judge was better placed to reconsider the application with a correct understanding of the pleaded case and of the proposed amendments. The matter was remitted to Lloyd J for fresh consideration. The appeal was allowed with costs; the indemnity-costs issue was deferred until completion of the first-instance proceedings.

For the pleading analysis, the Court also proceeded on the common ground that a claim under section 213 of the Insolvency Act 1986 requires fraudulent trading, participation in it, and knowing participation. Knowledge includes wilful blindness or reckless indifference, and dishonesty is required.

• Court of Appeal (Civil Division) — Permission to appeal was granted. The appeal from the case-management order was allowed, paragraph 1 of the order was set aside, and the amendment application was remitted to Lloyd J.
• Chancery Division — On 21 December 2001, Lloyd J gave limited permission to re-amend the statements of case and refused the remaining proposed amendments.
• Earlier interlocutory appeal in the same proceedings — On 21 December 1999, the Court of Appeal upheld Lloyd J’s earlier refusal to entertain a strike-out application: [2000] 1 All ER 954.