Clydesdale Financial Services Ltd v Nesbit Law Group LLP

On an application to amend a defence, the court applies the low threshold of a real prospect of success. A proposed case need only be non-fanciful; the court should not conduct a detailed trial where the evidence and contractual background require investigation. A collateral contract may contain implied terms even if those terms are absent from, or inconsistent with, the claimant’s pleaded version of the contract. Equitable set-offs are not “claims by way of set-off” for the purposes of section 35 of the Limitation Act 1980, and therefore do not require compliance with CPR 17.4. An insurer may have a real prospect of establishing that a solicitor owed contractual and concurrent duties to assess proposed insured claims with reasonable care and skill.

The claimant brought proceedings concerning a funding and legal expenses insurance arrangement. The defendant, Nesbit, pursued third-party proceedings against Acasta, alleging that Acasta was liable under a collateral agreement. Acasta sought permission to re-amend its defence to plead, among other matters, solicitor terms of business, implied contractual terms, a duty of care and equitable set-offs. Nesbit applied to strike out those pleas or obtain summary judgment.

The applications raised whether Acasta had a real prospect of establishing that relevant terms of business existed, that terms could be implied into the collateral agreement, that Nesbit owed a duty of care, and that the proposed set-offs were subject to section 35 of the Limitation Act 1980 and CPR 17.4.

1. Real prospect of success. The applicable threshold was whether Acasta’s proposed case was fanciful. The court was entitled to reject an implausible or incoherent case, but it should not resolve disputed evidence or undertake the detailed contractual and factual investigation appropriate for trial. On the limited evidence, Acasta had a real prospect of establishing that Nesbit had entered into relevant Solicitor Terms of Business Agreements.
2. Implied terms. The fact that the proposed implied terms were inconsistent with Nesbit’s pleaded express terms did not require the court either to accept Nesbit’s case in full or reject the existence of the collateral contract. A trial judge could find that a collateral contract existed but contained different, implied terms. The alleged comprehensive contractual framework did not, without detailed examination of the agreements and factual background, make implication impossible.
3. Acasta had a real prospect of establishing an implied obligation requiring Nesbit to assess lay clients’ claims, with reasonable care and skill, to ensure that they appeared to have reasonable prospects of success, alternatively at least a 51 per cent prospect of success. The insurer’s role and Nesbit’s specialist role made that case non-fanciful.
4. Set-off and limitation. Following The Brede, Westdeutsche Landesbank Girozentrale v Islington London Borough Council and Philip Collins Ltd v Davis, the court proceeded on the basis that equitable set-offs were not claims by way of set-off under section 35 of the Limitation Act 1980. The cross-claims were closely connected with Nesbit’s claims and, if a set-off existed, it would be equitable because it would be unjust to enforce the claim without taking the cross-claim into account. Section 35 and CPR 17.4 therefore did not apply.
5. Acasta also had a real prospect of establishing the pleaded duty of care. Nesbit did not object to that plea proceeding because it was no wider than the arguable contractual obligation. The parties were directed to agree the form of order and any further drafting of the re-amended defence.

This was a first-instance decision on applications concerning the proposed re-amendment of Acasta’s defence. The judgment referred to the earlier case-management decision in [2019] EWHC 3304 (Comm), which had permitted Nesbit’s third-party claim to proceed on a limited basis.