ICC Judge Barber’s judgment in the case of Purkiss v Kennedy & ors (Re Ethos Solutions Ltd)  EWHC 3098 (Ch) deals with a complex and late application for joinder and to re-amend proceedings. It was handed down following a four day hearing and weighs in at over 200 paragraphs, facts indicative of the unusual nature of the application.
Ethos Solutions Ltd had been an “umbrella company” which ran a business benefit trust scheme between 2008 and 2012, prior to the overruling of Sempra Metals Ltd v Revenue and Customs Comrs. Under the terms of the scheme the respondents received a modest PAYE salary from the company, and the balance (net of various commissions and expenses) by way of discretionary loans from an offshore trust.
On 9 December 2010 the government published draft legislation to tackle such schemes together with a ministerial statement warning that anti-forestalling provisions would apply between 9 December 2010 and 5 April 2011 to any payments which would be caught by the legislation if made after 6 April 2011. The Finance Act 2011 had the effect of scuppering the Ethos scheme with retrospective effect. The sole director put the company into creditors voluntary liquidation in 2012. Some years later in 2017 the Supreme Court in RFC 2012 plc (in liquidation) v Advocate General for Scotland (the Rangers case) overruled Sempra Metals Ltd v Revenue and Customs.
The liquidator’s substantive claim was issued in 2018 and sought relief under s 423 Insolvency Act 1986 (transaction defrauding creditors). The case comes, then, in a long line of proceedings involving what are usually called employee benefit schemes following a company insolvency. As originally formulated the liquidator’s claim was that payments in the relevant period amounting to some £9 million had been made for no consideration or at an undervalue; that monies had been paid for the benefit of the first 62 respondents by way of loans that were never intended to be repaid; and that the payments were made for the statutory purpose under s 423, the relevant victim being HMRC. The current liquidator (there had been a change of office-holder) now applied for permission to re-amend his claim by adding the company as second applicant and pleading additional or alternative claims in unjust enrichment. The application was opposed. The respondents said that the real reason for the change of tack was a belated realisation that the s 423 claim was doomed to fail. The liquidator refuted that, insisting that the s 423 claim remained good, was still his primary case, and quantum was unaffected by the proposed amendments.
The judge reviewed CPR 19 on the circumstances in which parties may be added to proceedings. The opening words of CPR 19.2(2), she noted, gave the court a discretion to refuse joinder even if the threshold requirements (set out in CPR 19.2(2)) were met.
“That discretion,” she said, “should be exercised in accordance with the overriding objective, including the cost and delay elements contained therein, and should take into account all relevant circumstances, including prejudice to the parties and to other court users.”
She also considered CPR 17, which sets out the circumstances in which a party may amend his statement of case. She looked at a wide range of factors relevant to the application of both Parts 17 and 19 of the CPR, only some of which are briefly considered here. Her judgment also reviews a vast range of case law. Necessarily the issue of joinder and the issue of re- amendment were inextricably linked.
In terms of case law on amendment, Judge Barber followed SPI North Ltd v Swiss Post International (UK) Ltd and Kawasaki Kisen Kaisha Ltd v James Kemball Ltd, holding that a proposed amendment must be arguable, carry a degree of conviction, be coherent, properly particularised and supported by evidence that established a factual basis for the allegation. It is no surprise, then, that much of her judgment takes the form of a forensic examination of the proposed amendment in the light of the available evidence.
The liquidator’s application was dismissed ultimately on the basis that, as formulated, it had no real prospect of success:
“In my judgment the draft [amendments] fail to articulate a properly particularised, ‘more than merely arguable’ case on enrichment, or enrichment ‘at the expense of’ the Company, with any real prospect of success. The Applicant has also failed to evidence a ‘more than merely arguable’ case on enrichment, or enrichment at the expense of the Company, with real prospects of success.
She also found, as a matter of discretion, that it would not be desirable to add the company as a new party for the purposes of allowing it to pursue what she described as hypothetical declaratory relief. Furthermore, following guidance given by Vos J, as he then was, in Lehman Commercial Mortgage Conduit Ltd v Gatedale Ltd, she held that “it would be neither proportionate nor in accordance with the overriding objective to allow joinder or amendment for such a purpose.” The age of the claim was another factor she took into account:
“This is an extremely stale claim. It relates to payments made in the period 2009-10, over 12 years ago. Already almost four years have passed since proceedings were issued.”
Whilst those conclusions, she said, were sufficient to dispose of the application, she also considered the relevance of limitation, finding that it was “reasonably arguable” that the proposed amendments regarding mistake of law were outside the applicable limitation period. She also held the liquidator had failed to satisfy her that the company met the requirements of s 35(5) Limitation Act 1980 and CPR 19.5(2) and (3) (which contain provisions about adding or substituting parties after the end of a relevant limitation period) on the issue of joinder in relation to its proposed unjust enrichment claim; and even if the company could clear the s.35(5)(a) threshold (that the new cause of action arises out of the same facts or substantially the same facts as are already in issue in the original action), on any footing it could not clear the s.35(5)(b) threshold (namely that the addition or substitution of the new party is necessary for the determination of the original action).
Although the application to join the company and re-amend failed, the substantive claim will, one supposes, proceed. An earlier attempt to strike out was largely unsuccessful, and, as already noted, the liquidator’s position on this application was that the claim would continue even if amendment were not allowed. This judgment should not therefore be taken as indicative of the court’s approach to business or employee benefit schemes in general: the liquidator’s failure was procedural rather than substantively fatal. The case does, however, underline the need for care from the outset in the choice of party, cause or causes of action and the way in which the case is to be pleaded. That is not always as easy as it sounds, and the need to amend often arises; but any application to do so should be made at the earliest possible stage in the light of the need to satisfy the court that it should exercise its discretion in favour of permitting amendment, a problem that may be acute for any applicant facing limitation issues.