Bank of Scotland Plc v Watson & Anor

The Court of Appeal allowed the bank's appeal and struck out the defendants' Defence and Counterclaim. The court applied the limits on amendment where a period of limitation has expired (Limitation Act 1980, s.35) and CPR rule 17.4(2): an amendment that would add or substitute a new claim is permitted only if the new claim arises out of the same or substantially the same facts as a claim already in the proceedings. The existing county court Defence and Counterclaim did not plead facts sufficient to found a cause of action for dishonest assistance in breach of trust, because it alleged only lending to investors and knowledge of regulatory concerns, not assistance in the misapplication of funds or knowledge/recklessness as to that misapplication. The draft amended Defence and Counterclaim sought to introduce multiple new causes of action (agency liability for misrepresentations, deceit/negligent misrepresentation, undue influence, breaches under FSMA, negligence and a more developed dishonest assistance case) based on new factual allegations. Those would, if allowed, be "new claims" for the purposes of section 35 and CPR 17.4 and did not arise out of the same or substantially the same facts as the pleaded counterclaim; permission to amend was therefore refused. The respondents were left to bring fresh proceedings if they wished, subject to limitation defences.

Background and nature of the proceedings.

The bank sought possession and repayment of a £345,000 loan secured by a mortgage. The defendants, Mr and Mrs Watson, had invested large sums with Dobb White & Co and lost them when that operation proved to be a Ponzi scheme. The Watsons alleged the bank had facilitated or assisted the fraud and set up a Defence and Counterclaim in the county court asserting dishonest assistance and other causes of action. The county court refused the bank's strike-out/summary judgment application, the bank appealed and the appeal was dismissed by the circuit judge; the Court of Appeal then granted permission to appeal and heard the matter.

Procedural history and prior steps.

• The bank issued possession proceedings in the Bournemouth County Court in November 2008. The county court proceedings were stayed at times to allow High Court claims by the Watsons, which were ultimately struck out for deficient pleading; those High Court claims therefore ended without a decision on the merits.
• District Judge Mildred dismissed the bank's application to strike out the Defence and Counterclaim; His Honour Judge Iain Hughes Q.C. (circuit judge) dismissed the bank's appeal; permission to appeal to the Court of Appeal was granted and the matter was heard by the Court of Appeal on 10 October 2012 with judgment handed down on 22 January 2013.

Nature of the claim(s) and issues for decision.

• (i) The bank sought strike out of the Defence and Counterclaim as an abuse of process or alternatively summary judgment on limitation grounds.
• (ii) The Watsons sought to rely on a counterclaim alleging dishonest assistance in breach of trust and (in an unfiled draft amendment) additional causes of action: agency liability for misrepresentation, deceit and negligent misrepresentation, undue influence, breaches under the Financial Services and Markets Act 2000, and negligence.
• (iii) The principal issues were whether the existing Defence and Counterclaim disclosed a viable cause of action for dishonest assistance; whether proposed amendments would introduce "new claims" within the meaning of Limitation Act 1980 s.35 and CPR rule 17.4(2); and whether permitting amendment would amount to an abuse of process in the circumstances (given earlier High Court proceedings).

Court's reasoning and conclusions.

• The existing pleading did not sufficiently allege assistance in the breach of trust (no pleaded assistance in the misapplication of the invested funds) nor did it sufficiently allege the requisite dishonesty (knowledge or recklessness as to the breach). Allegations that the bank lent to investors and that Dobb White had regulatory problems fell short of pleading dishonest assistance.
• The draft amended Defence and Counterclaim sought to add multiple distinct causes of action relying on materially different factual particulars (detailed oral representations by named bank employees, agency allegations that Dobb White acted as agent of the bank, later events in 2002, FSMA-based claims and undue influence). Those allegations therefore amounted to "new claims" involving new causes of action, not merely further particulars of the pleaded counterclaim.
• Because the proposed new claims did not arise out of the same or substantially the same facts as the pleaded counterclaim, permission to amend under CPR rule 17.4(2) (in the context of Limitation Act 1980 s.35) could not be given. The court therefore struck out the counterclaim and refused permission to amend it; the Watsons remain able to start fresh proceedings but will face limitation defences.
• The court considered but rejected the contention that res judicata or abuse principles precluded reopening the matters; it distinguished earlier authorities where appropriate and emphasised that the earlier High Court claims were struck out on procedural pleading grounds rather than on the merits.

The court also observed the practical consequence that allowing the amendments would undermine the limitation protections and the established rule that a "new claim" must arise from the same or substantially the same facts to be added after limitation has run.

Appeal allowed. The Court of Appeal held that the existing Defence and Counterclaim did not disclose a viable cause of action in dishonest assistance and that the proposed amended Defence and Counterclaim would introduce new causes of action. Under Limitation Act 1980 s.35 and CPR rule 17.4(2) an amendment that adds or substitutes a new claim is permissible only if the new claim arises out of the same or substantially the same facts as an existing claim; the proposed amendments did not meet that test. Permission to amend was therefore refused and the counterclaim was struck out; the respondents may commence fresh proceedings but will face limitation risks.

County Court (Bournemouth and Poole) – application to strike out Defence and Counterclaim dismissed by District Judge Mildred (6 June 2011). Appeal to His Honour Judge Iain Hughes Q.C. (circuit judge) who dismissed the bank's appeal. Permission to appeal to the Court of Appeal was granted (Lewison LJ on 28 May 2012) after Sir Richard Buxton refused permission on the papers. Court of Appeal ([2013] EWCA Civ 6) allowed the bank's appeal on 22 January 2013. High Court claims by the Watsons (Queen's Bench Division: HQ07X00549 and HQ08X04884) were struck out or dismissed on procedural pleading grounds before the county court matters were resolved.