Garden House Software Limited v Timothy John Marsh & Ors

Permission to amend a statement of case is a discretionary decision governed by the overriding objective. The court balances the prejudice to the applicant against that to the respondent.

A new claim must have a real prospect of success, but the threshold is low. Weak or improbable claims may proceed if they are arguable and not fanciful. Further particulars of an existing claim do not require a separate merits assessment, although they must be relevant and connected to the existing plea.

An amendment introducing a new cause of action after limitation may be allowed where it arises from the same or substantially the same facts already in issue. The court should avoid turning an amendment application into a mini-trial or a strike-out application by a side wind.

Garden House Software Ltd, having taken an assignment from the liquidators of Serisys Ltd, brought claims concerning the transfer of intellectual property connected with software developed by companies in the Serisys group.

The claimant sought permission to amend its particulars of claim. The First, Second, Sixth and Seventh Defendants applied to strike out the existing pleading and opposed parts of the proposed amendments. The Third, Fourth and Fifth Defendants opposed further amendments, including claims alleging de facto directorship, dishonest assistance and exemplary damages.

The issues included whether proposed amendments introduced new causes of action, whether limitation defences might arise, whether the claims had a real prospect of success, and whether the amendments arose from the same or substantially the same facts as claims already in issue.

1. Amendments allowed. The court permitted the proposed amendments, subject to a minor tweak. The strike-out application consequently fell away.
2. Permission to amend is an exercise of discretion governed by the overriding objective. The court must balance the injustice to the applicant if permission is refused against the injustice to the respondent if permission is granted, considering all the circumstances.
3. Where an amendment introduces a new claim, the applicant must show a real prospect of success. This is a comparatively low threshold. A claim may be weak or improbable yet remain arguable if it is not fanciful. Where the outcome depends on disputed evidence or mixed questions of fact and law, the court should avoid conducting a mini-trial.
4. Where an amendment supplies further particulars of an existing plea, the real-prospect test does not apply to each particular. The particulars must nevertheless be relevant and connected to the existing plea. A party cannot use opposition to such an amendment to obtain strike out or reverse summary judgment by a side wind.
5. Under CPR 17.4 and Limitation Act 1980, s 35, a new cause of action may be added after expiry of the limitation period where it arises from the same or substantially the same facts as an existing claim. The assessment is one of fact and degree. Complete factual overlap is unnecessary, and the procedural stage of the proceedings is relevant to prejudice.
6. The unlawful-loans claim against the First Defendant was already present in the claim form and original particulars, despite the absence of a statutory reference and remedy in the prayer. The amendments clarified and properly framed that claim. The proposed indemnity claim against the other defendants was new or expanded, but was sufficiently arguable and arose from substantially the same facts.
7. A de facto director claim against the Third to Fifth Defendants was new because the original pleading distinguished them as shadow directors. It was nevertheless allowed because the de facto and shadow director claims were fact-sensitive breach-of-duty claims involving substantially the same factual investigation.
8. A de facto director is identified objectively by examining whether the person assumed responsibility to act as a director and undertook functions properly discharged only by a director. A person cannot be both a de facto and shadow director of the same company at the same time, although the factual inquiries substantially overlap. The general duties in ss 171–177 of the Companies Act 2006 apply automatically to a de facto director; in the case of a shadow director, they apply only where and to the extent capable of applying.
9. The dishonest-assistance and exemplary-damages amendments were also permitted. Their success depended on fact-sensitive issues to be determined at trial, including the alleged breaches, the value of the software and whether the defendants calculated that the benefits of wrongdoing might exceed compensation.

The claim was to proceed on the amended basis. Consequential matters, including costs and security for costs, were left for further determination.