The Court of Appeal has provided recent guidance in SPI North Ltd v Swiss Post International (UK) Ltd & Anor  EWCA Civ 7 on the extent of a defendant’s duty to make enquiries of third parties before that defendant may ‘not admit’ an allegation.
This note examines that decision and its implications for both claimants and defendants.
This particular procedural skirmish arose from a claim brought by SPI North Limited against Swiss Post International (UK) Limited for breach of a Premium Partnership Agreement (the “PP Agreement”) and Asendia UK Limited for inducing that breach.
The crux of SPI North’s case was that SPI UK had breached express and implied terms of the First Agreement by entering into a separate, subsequent JV agreement with Asendia (the “JV Agreement”). SPI North also alleged that it reached a collateral agreement on prices with SPI UK to the effect that prices charged to SPI North under the PP Agreement would follow certain prescribed formulae.
It was in contesting this latter argument that the Defendants asserted in their defence a ‘non-admission’ as to the specific pricing formulae alleged. A series of follow-up Part 18 requests elicited the Defendants’ response that such information was “not easily available” and required “appropriate investigation with the benefit of both contemporaneous documents and the assistance of potential witnesses” (principally a former employee). The issue, the Defendants argued, should be dealt with in the disclosure process instead. This will be a retort familiar to many litigators.
The Claimant’s response was to apply for an Order that SPI UK’s defence be struck out unless it complied with the relevant terms of CPR r.16.5, identifying 13 instances of pleaded allegations which it argued SPI UK had a duty to positively answer on the basis of third party enquiries.
By way of a reminder, CPR r.16.5 prescribes that:
“(1) In his defence, the defendant must state –
(a) which of the allegations in the particulars of claim he denies;
(b) which allegations he is unable to admit or deny, but which he requires the claimant to prove; and
(c) which allegations he admits.
(2) Where the defendant denies an allegation –
(a) he must state his reasons for doing so; and
(b) if he intends to put forward a different version of events from that given by the claimant, he must state his own version.
In other words, save where a defendant admits an allegation, that defendant may only advance no positive case in circumstances where it is unable to do so. Whether it is more convenient to do so at a later stage is not a relevant consideration.
The Claimant’s strike out application therefore raised two related issues:
- The extent to which (if at all) a defendant is required to make enquiries of third parties before it is said to be unable to admit or deny an allegation; and
- The status of the commonly-used phrase “not admitted” in light of CPR r.16.5.
‘Duty’ to make enquiries:
The application failed at first instance. Before the Court of Appeal, the Claimant argued that the use of the words “unable to admit or deny” in CPR r.16.5 – a striking departure from the pre-CPR language – implied that a party must make reasonable enquiries (including, if necessary, of third parties) before it can be satisfied it is not able to advance a positive case.
The Court of Appeal’s decision:
The Court of Appeal was unconvinced by the Claimant’s interpretation of CPR r.16.5, holding that:
- The relatively short period for filing a defence under CPR r.15.4(1) necessitates a limited obligation to make enquiries of relevant facts not otherwise in defendants’ existing knowledge;
- The obligation proposed by the Claimant was likely to generate further disagreements as to how reasonable a defendant’s enquiries were at the pleadings stage; and
- Effectively requiring defendants to rely on a third party’s information would be unfair in circumstances where a defence must be accompanied by a statement of truth (“SoT”) as to its contents. Defendants cannot be expected in such a short window to vouch for the accuracy of information received from third parties without a proper opportunity to investigate.
To impose the obligation proposed by the Claimant in this case could put defendants acting in good faith at risk of mis-stating material facts, with the attendant risk that they will face accusations of non-compliance with their SoT (for lack of honest belief).
On the other hand, if ‘belief’ is stretched far enough to encompass information a defendant has regurgitated without genuine inquiry, readers might think the SoT attached to a defence does not mean very much at all.
The role of the disclosure process:
It is certainly arguable that information gathered from third parties for the purposes of conducting litigation is, generally, best supplied during the disclosure exercise because:
a. It affords defendants the opportunity to divert proper attention and resources to obtaining and storing all disclosable information;
b. A disclosure statement requires verification only as to the methodology of the search – it does not require the disclosing party to make representations as to the accuracy of the information thereby obtained;
c. The disclosure exercise requires defendants to disclose all material which harms their own, or supports another’s, case as well as information beneficial to their defence. Gathering third party information at the pleadings stage risks creating a partial picture for the Court, whether deliberate or otherwise; and
d. The parties may then comment upon a (theoretically) complete body of information in their witness statements for trial.
The Court of Appeal’s decision will therefore give comfort to defendants facing similar demands to incur potentially significant costs in the earliest stages of the litigation in seeking third party information. It also heads off the (not too remote) prospect of a defendant later having to resile from a representation made in its defence on the basis of ‘bad’ information haphazardly gathered.
The status of non-admissions?
Of secondary importance in the judgment, but potentially interesting to practitioners, is the Court of Appeal’s comments on the use of the phrase “not admitted” in defences to which CPR r.16.5 applies.
What are non-admissions?
Henderson LJ noted that, while the practice of “not admitting” an allegation finds no textual support in CPR r.16.5, it does not necessarily contravene the rule either. It is most commonly used as “a convenient form of shorthand” for a defendant’s reliance on CPR r.16.5(1)(b), i.e. that the defendant is unable to admit or deny a particular allegation.
In other words, it is now clear, if not before, that ‘not admitting’ an allegation is in most instances another (perhaps more client-friendly) way of conveying that a party is unable to admit or deny the allegation, provided that the Defendant is genuinely unable to do so – on which see above.
“The bad old days”:
However, defendant lawyers will also note Henderson LJ’s warning against “a reversion to the bad old days when a defendant could get away with a stonewalling defence full of indiscriminate non-admissions”. Non-admissions are not an opportunity in the CPR-era for a party to take a neutral stance when it should be putting a positive case.
Fortunately for the Defendants in this case, the Court of Appeal did not consider their defence inadequately pleaded and instead directed its disapproval to the Claimant, finding that it had created:
“unnecessary and expensive inter-solicitor correspondence and satellite litigation at a time when the energy and resources of the parties should be devoted to getting on with the action in a proportionate and cost-effective manner”.
This kind of satellite litigation therefore also presents risks to claimants, not least on the issue of costs.
In essence, the Court of Appeal has confirmed that defendants are not generally required to choose between fully investigating a claimant’s case at an early stage, often at significant expense, or risk the wrath of the Court for advancing an insufficiently positive case.
In navigating that tension, the judgment strikes a (defendant-friendly) balance between the clear legislative aims of CPR r.16.5 – to more effectively narrow the issues at an early stage and encourage the parties to delineate the boundaries of their respective cases – and the requirement of fairness to defendants responding to allegations within the short window for filing a defence.
To re-tip the balance, it may be that claimants bringing applications of this nature would be well-advised to demonstrate why the third party information is:
a) Easily available to the defendant, as though it were already in the defendant’s control
b) Necessary for the claim to proceed beyond the pleadings stage, i.e. it cannot simply be postponed until the disclosure process; and
c) Relevant to a fundamental aspect of the dispute.
It may also benefit claimants to seek a less severe conditional sanction than a strike out in these kinds of applications – the courts are generally reluctant to strike out all or part of a defendant’s case for insufficiently positive pleadings.
Finally, Henderson LJ’s comments on the requirements of CPR r.16.5 serve as a reminder to practitioners that the courts intend to guard against a return to the pre-CPR days of (alleged) stone-walling defences and aggressive procedural skirmishes. For the avoidance of doubt, such practices are decisively ‘not admitted’.