Mullarkey & Anor v Broad

A party requires leave to advance on appeal a basis of claim deliberately excluded at trial. This applies whether or not the earlier restriction amounts to a formal concession. Permission to appeal on grounds containing the new point gives the appellant an opportunity to seek leave; it does not itself authorise the change.

A party seeking such a change bears a heavy burden of showing that the evidence could not have been presented materially differently. Allegations in the original pleading and existing findings do not necessarily discharge that burden. The appellate court must avoid speculation about additional evidence or cross-examination. Particular care is required where parties represented themselves and the trial judge organised the evidential inquiry around the expressly limited case.

John Mullarkey and Ivor Goodman were creditors by assignment of Southill Finance Limited, a company in liquidation. Mullarkey and John Broad, the respondent, had been directors of Southill. The claimants brought misfeasance proceedings against Broad under section 212 of the Insolvency Act 1986.

The claims concerned the unpaid balance of the price of a property transferred by Southill to its directors and loans to Gentlesound Limited, a company in which Broad retained an interest. At trial, the claimants expressly confined their case to fraudulent breach of trust. They accepted that limitation otherwise barred their claims. Lewison J found that the pleaded allegations of fraud failed and dismissed the application on 3 July 2007.

On appeal, the claimants sought to establish liability without proving fraud. They argued that the loans contravened section 330 of the Companies Act 1985 and involved breaches of fiduciary duty. They contended that section 21(1)(b) of the Limitation Act 1980 therefore excluded statutory limitation. Permission to appeal had been granted on grounds including those arguments. The central issue was whether the claimants should be permitted to advance that different basis of claim for the first time on appeal.

1. The appeal was unanimously dismissed. The appellants were refused leave to change their case by relying on section 21(1)(b) of the Limitation Act 1980. The trial decision on the case actually presented was otherwise unchallenged, apart from a factual issue which was unnecessary to resolve for the appeal (paras [28], [39], [51]–[53]).

2. Permission to appeal on grounds containing a new point did not constitute leave, binding on both parties, to advance that point. It established only a right to argue for its admission at the full hearing. Where a party had expressly confined its case to one basis at trial, the principles governing withdrawal of a concession also governed a proposed change of basis, whether or not the restriction was properly described as a concession (para [29]).

3. The admission of a new point remained discretionary, even where it concerned law alone. Under the approach in Pittalis v Grant [1989] 1 QB 605, a new pure point of law would usually be allowed where the opponent had sufficient opportunity to meet it, had suffered no detriment through its earlier omission and could be adequately protected in costs. The reasoning in Jones v MBNA International emphasised the substantial justice of requiring parties to present their whole case at trial. Further evidence, or an evaluation dependent on seeing and hearing witnesses, presented particular obstacles to admitting a new point (paras [30], [32]–[33], [49]).

4. The appellants bore a heavy burden of showing that the evidence could not have been presented materially differently. They had not discharged it. For the Gentlesound loans, the necessary findings about the dates of lending and Southill’s status as a relevant company had not been made. Although the unpaid purchase price appeared to constitute a prohibited loan to directors, the court could not be sure that additional questions or evidence would have made no difference. The inclusion of underlying facts in the pleading did not establish that the alternative case had been tried (paras [46]–[49]).

5. The predominance of litigants in person reinforced the difficulty. The trial judge had an important role in ensuring that everyone understood the issues and their evidential implications. The possible defence of laches added no material obstacle because it had been available whichever paragraph of section 21(1) applied. The court also observed that section 341(3) of the Companies Act 1985 preserved liabilities to repay a loan and for breach of fiduciary duty. It did not determine whether the proposed substantive claim attracted section 21(1)(b). The dismissal of the application therefore stood (paras [35], [43], [49]–[51]).

• Court of Appeal (Civil Division): In Mullarkey & Anor v Broad [2009] EWCA Civ 2 , the court refused to permit the new basis of claim and unanimously dismissed the appeal. Waller LJ had previously granted permission to appeal on grounds which included the new points.
• High Court, Chancery Division: Lewison J dismissed the application under section 212 of the Insolvency Act 1986 on 3 July 2007 after a trial in Bristol. He accepted the appellants’ creditor status but rejected the allegations of fraudulent breach of trust. He awarded costs and ordered payment of £10,000 on account.