Slater & Gordon (UK) 1 Ltd v Watchstone

Permission to amend a defence or introduce a counterclaim should be granted where the proposed case has a real, rather than fanciful, prospect of success. The court assesses whether the case has sufficient reality to proceed, without conducting a mini-trial or deciding which evidence is more probable. Material disputes about confidentiality, causation, loss and witness consistency are ordinarily matters for trial. A related counterclaim should generally be tried with the claim where the issues overlap, separate trials risk inconsistent findings or issue estoppel, and common evidence will be required.

The claimant sought substantial damages arising from its acquisition of subsidiaries from the defendant. Shortly before trial, the defendant applied to amend its defence and introduce a counterclaim alleging breach of confidence, inducing breach of contract and unlawful means conspiracy based on an alleged confidential information channel between the claimant’s advisers and PwC.

The court considered whether the proposed amendments had a real prospect of success and, if permission were granted, whether the counterclaim should be tried with the existing claim. The claimant challenged the confidentiality, causation, loss and consistency of the proposed case.

1. Permission to amend. Permission was granted for the amendments to the defence and for the counterclaim. Under the Civil Procedure Rules 1998, the relevant question was whether the proposed case had a real, rather than fanciful, prospect of success. The threshold required more than mere arguability and some degree of conviction, but it did not require the court to determine the merits finally.
2. The court could reject a factual case that was plainly fanciful, entirely without substance or unsupported by material capable of establishing a prima facie case. However, the exercise was analogous to summary judgment and default judgment applications. It was not a summary trial. The court should consider the merits only so far as necessary to decide whether the case had sufficient reality to proceed. It should not resolve detailed evidential disputes or conduct a mini-trial.
3. The disclosed emails and related documents gave the proposed counterclaim considerably more than a fanciful prospect of success. They supported an arguable case that information supplied by PwC was commercially confidential, that the claimant’s advisers knew or ought to have known of its confidential character, and that the information may have been used in negotiations. Whether the information was confidential, whether it was used, and whether it caused loss were matters for trial.
4. The alleged matters were relevant not merely to witness credibility but also to reliance and the pleaded issues. The proposed equitable set-off was also properly arguable and should be pleaded because, if established, it could diminish or extinguish part of the claim.
5. Trial management. The counterclaim was ordered to be tried with the claim. The issues overlapped materially, the evidence would substantially overlap, and the trial judge might otherwise make findings giving rise to issue estoppel. Separate trials would risk delay, increased costs and inconsistent factual findings. The existing trial timetable could accommodate the additional work through active case management.
6. The costs of the application were ordered to be costs in the counterclaim.