Bank of Scotland Plc v Watson & Anor

A new claim for limitation purposes is identified by a new cause of action, not merely by a different remedy or improved particulars. A change in the essential factual basis introduces a new cause of action. Under the Civil Procedure Rules 1998, rule 17.4(2), an amendment adding a new claim after limitation is permissible only where it arises from the same or substantially the same facts as an existing claim. A claim in dishonest assistance requires pleaded assistance in the conduct constituting the breach of trust and dishonesty in doing so. Lending funds and transferring them on the borrowers’ instructions did not satisfy those requirements. A procedural strike-out without a decision on the merits does not create res judicata. The appeal was allowed.

The bank brought county court possession proceedings against the Watsons in respect of a loan secured by a mortgage over their home. The existing Defence and Counterclaim alleged that the bank had dishonestly assisted a breach of trust by the operators of a fraudulent investment scheme.

The bank applied to strike out the pleading as an abuse of process or obtain summary judgment on limitation grounds. District Judge Mildred dismissed the application. His Honour Judge Hughes Q.C., treating the appeal as a rehearing, dismissed the bank’s appeal. Earlier High Court proceedings brought by Mrs Watson and others had either not been served or had been struck out for pleading defects without a decision on the merits.

The Court of Appeal considered whether the existing pleading disclosed a viable claim, whether the proposed amended pleading introduced new claims outside Civil Procedure Rules 1998, rule 17.4, and whether the proposed reliance on the claims was an abuse of process or barred by res judicata.

Appeal allowed. Lord Justice Lloyd delivered the judgment, with which Lord Justices Jackson and Laws agreed.

1. The existing Defence and Counterclaim alleged only dishonest assistance. The relevant breach of trust was the later misuse and misappropriation of the invested money. The pleading alleged that the bank helped attract investors and knew of earlier regulatory difficulties, but did not allege assistance in the misappropriation or knowledge, or recklessness, that the money would be misapplied. It therefore disclosed no cause of action in dishonest assistance.
2. Lending money to potential investors did not assist the later breach of trust. Nor did transferring the money, on the Watsons’ instructions, to the account specified by them. That payment could not itself constitute a breach of trust when the investors had stipulated and agreed that the money should be paid there.
3. The proposed amendment introduced agency, misrepresentation, undue influence, Financial Services and Markets Act claims and negligence claims based on materially new factual allegations. The proposed dishonest assistance claim was also new if viable, because it relied on further facts, including events in 2002. The distinction between a new cause of action and a corrective amendment was considered by reference to Lloyds Bank v Rogers [1999] 3 EGLR 83, HMRC v Begum [2010] EWHC 1799 (Ch), Paragon Finance v Thakerar [1999] 1 All ER 400 and Berezovsky v Abramovich [2011] 1 W.L.R. 2290. The present amendments were closer to Paragon Finance and did not fall within the narrower approach in Berezovsky.
4. Although section 35 of the Limitation Act 1980 could make an amended claim relate back to the commencement of the original proceedings, Civil Procedure Rules 1998, rule 17.4(2), required the new claim to arise from the same or substantially the same facts as an existing claim. That condition was not met, so permission to amend could not be granted.
5. The procedural strike-out of the earlier High Court claim for failure to plead properly was not a decision on the merits and therefore did not create res judicata. Abuse of process required a broad, merits-based assessment of all the circumstances. The prior stay and unsuccessful High Court proceedings did not, by themselves, prevent the Watsons from raising the matters by counterclaim, although the appeal succeeded on the pleading and amendment issues.
6. The counterclaim was struck out. Permission to substitute the proposed amended Defence and Counterclaim was refused. Mrs Watson was left to bring any fresh claim separately, subject to the risk of a limitation defence.

• Court of Appeal (Civil Division): In [2013] EWCA Civ 6, allowed the bank’s appeal, struck out the counterclaim and refused permission to amend.
• Bournemouth and Poole County Court, His Honour Judge Hughes Q.C.: Treated the bank’s appeal from the District Judge as a rehearing and dismissed it.
• Bournemouth and Poole County Court, District Judge Mildred: Dismissed the bank’s application to strike out the Defence and Counterclaim or obtain summary judgment.