Martlet v Mulalley [2021] EWHC 296 (TCC): How does one Reply?

This case involved a strike-out application of part of the claimant’s Reply and, in the alternative, an application to amend the Particulars of Claim. The judgment illuminates whether a new claim can form part of the Reply in responding to facts asserted in the Defence. The judgment also elucidates what questions need to answered and relevant considerations before the court is willing to permit pleading a new claim, via amended Particulars of Claim, after the expiry of the limitation period.

Facts

Martlet Homes Limited (“Martlet”) entered into a design and build contract dated 20 January 2005 with Mulalley & Company Limited (“Mulalley”), who agreed to design and undertake various refurbishment works to Martlet’s towers (“Works”) for a total price of £14,867,818. Practical completion was achieved in respect of the Works on 7 April 2008.

Martlet issued these proceedings against Mulalley on 11 December 2019 seeking damages for alleged negligence and breach of contract in the design and construction of the Works. Martlet pleaded that as a result of defects to the fire barriers, their effectiveness would be compromised in the event of fire spreading to the cladding system. Thus, the defects needed to be rectified, resulting in a loss.

The claim form was served together with Particulars of Claim on 9 April 2020, which, being Maundy Thursday, was the very last working day on which proceedings could be served within the four months allowed by rule 7.5 of the Civil Procedure Rules 1998 (“CPR”). By then, there was no possibility of a fresh action in respect of the Works since more than twelve years had elapsed from the date of practical completion.

Mulalley served a full Defence on 4 June 2020 denying that the alleged breaches of contract had caused any loss. Mulalley argued that, following the tragic fire at Grenfell Tower in June 2017, Martlet was in any event required to replace the combustible expanded polystyrene (“EPS”) cladding.

Martlet served a Reply on 9 July 2020, stipulating that the pleaded breaches of contract were an effective or proximate cause of the claimed loss and damage. In the alternative, Martlet pleaded at paragraphs 80-83 of the Reply that, even if Mulalley were right as to causation, Mulalley would still be liable for breach of contract for using combustible EPS insulation boards in cladding the towers (“Alternative Case”).

Mulalley sought to strike out paragraphs 80-83 of the Reply on the basis that Martlet cannot raise a new claim by way of a Reply. Martlet resisted such order but, in the alternative, sought permission to amend its Particulars of Claim to plead out the Alternative Case. Mulalley argued that the court should refuse permission to amend since this was an attempt to plead a new claim based on new facts after the expiry of the limitation period.

The Strike-Out Application

Rule 3.4(2)(a) of the CPR provides that the court can strike out the whole or part of a statement of case that ‘discloses no reasonable grounds for bringing or defending the claim.’ Paragraph 9.2 of Practice Direction 16 provides that ‘a subsequent statement of case must not contradict or be inconsistent with an earlier one; for example, a reply to a defence must not bring in a new claim. Where new matters have come to light the appropriate course may be to seek the court’s permission to amend the statement of case.’

Mulalley argued that paragraphs 80-83 of the Reply were not responsive to the Defence but seek to set up a new claim. This point was emphasised by the fact that Martlet titled the paragraphs as “Alternative Case” in their Reply, as well as the proposed amendment to the Particulars of Claim.

Martlet claimed that it was inevitable that a Reply would contain new and different allegations from those contained in the Particulars of Claim since otherwise it will serve no purpose. Martlet argued that the Reply in this case does not fall foul of paragraph 9.2 of Practice Direction 16 because it is not “inconsistent” with Martlet’s primary case pleaded in the Particulars of Claim. Further, relying on the decision in Herbert v Vaughan [1972] 1 WLR 1128 (“Herbert”), Martlet submitted that the rules did not in any event preclude a party from pleading a new argument in the Reply where it arises out of a line of defence.

Pepperall J disagreed with Martlet’s submission that limiting new claims to the amended Particulars of Claim would deprive the Reply of all purpose. A Reply can be particularly useful in order to refute a ground of defence. Whilst a claimant can plead new facts in order to refute a defence, it cannot plead a new claim. Equally, a Reply can usefully admit a fact alleged in the Defence (thereby avoiding the cost and trouble of needing to prove the fact, and allowing the court and parties to focus on the real issues) while explaining why such admitted fact does not provide a defence to the claim. On the other hand, a Reply can deny an allegation of fact and usefully explain why such allegation must be wrong.

Pepperall J also distinguished Herbert from the facts in this case because Martlet does not seek to rely on its Alternative Case in respect of the use of combustible EPS boards purely as a shield to some counterclaim by Mulalley, rather it relies on such case to establish liability upon its claim. It did not matter that Martlet had no need for its Alternative Case if it could prove causation on the basis of its original case; it was still a new claim. Thus, the Alternative Case at paragraphs 80-83 of the Reply were struck out.

The Amendment Application

The procedural rule envisaged by section 35(4) of the Limitation Act 1980 is now contained in rule 17.4 of the CPR, which provides that ‘the court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.’

Pepperall J observed at [34] that the essential factual basis of the original design claim in respect of fire safety was that that the efficacy of the fire barriers was compromised by air gaps and the use of inadequate fixings. By contrast, the essential factual basis of the proposed amendment was that the use of combustible EPS insulation boards was itself a breach of contract. Therefore, the proposed amendment was a new cause of action.

Pepperall J stated at [36] that whilst the original Particulars of Claim were simply not concerned with the use of combustible EPS insulation boards, ‘the court must take a wider view of the facts arising on the claim that also encompasses consideration of the Defence.’ The proposed amended claim is based upon the assertion introduced by the Defence that the true cause of loss was the need to replace the entire cladding system because of the post-Grenfell realisation that the use of combustible materials created an unacceptable risk of fire. Thus, the proposed amendment arises from substantially the same facts as Mulalley puts in issue by its Defence.

Mullalley requested the court use its discretion to dismiss the amendment because it would result in prejudice in having to investigate new questions as to the choice and use of the EPS boards between 13-16 years ago. Mullalley asserted that it is ‘highly unlikely’ that it will have retained all of the design documents, and the proposed amendment would require different lay and expert witnesses.

However, Pepperall J illuminated that, strangely, whilst engaged in an adjudication in 2019 concerning the same allegations in this claim, Mulalley asserted its causation defence and Martlet sought to introduce its Alternative Case as to the use of combustible cladding by way of reply. The adjudicator rejected Martlet’s new case on the basis that it fell outside the scope of the dispute referred for adjudication.

Against that backdrop, Pepperall J stated at [50] that ‘Mulalley no doubt realised from the reply submissions in the adjudication that there might well be an issue in these proceedings as to the use of EPS boards.’ Indeed, Mulalley already had the benefit of some expert evidence as to the suitability of EPS boards, which was served in the adjudication. The prejudice would instead be against Martlet as it would lose the opportunity to seek to hold Mulalley to account for the choice of a combustible cladding system. Balancing these matters, Pepperall J permitted the post-limitation amendment in order to plead Marlet’s EPS case.

Commentary

There are three main lessons we can learn from this case concerning a Reply and amending the Particulars of Claim. First, new claims must be added by amending the Particulars of Claim and cannot simply be pleaded by way of Reply. Pepperall J observed at [21] that ‘not only is the proposition that one can advance a new claim in a Reply contrary to the clear terms of the Practice Direction, but it is also inherently undesirable and contrary to the overriding objective of dealing with cases justly and at proportionate cost.’ Pleading a Reply is not to have ‘a second bite at the cherry’; rather, it should clarify the original claim and the relevance of material facts as well as discard facts which do not need to be established.

Secondly, when assessing whether a claim is a new claim falling under rule 17.4 of the CPR, a party should be specific in relation to the facts. For example, Pepperall J stated at [34] that it was ‘too superficial’ to focus simply on the fact that the proposed amendment seeks to plead an additional challenge to the design of the cladding system. The original claim involved the efficacy of the fire barriers and the proposed amendment concerned the use of combustible EPS insulation boards. Thus, parties should avoid being too broad or taking a general approach as to whether a proposed amendment is a new claim or part of the original claim.

Lastly, Pepperall J stipulated at [49] that ‘[i]t was astonishing in those circumstances, especially with a looming limitation problem, that Martlet elected not to plead its alternative case from the outset in these proceedings.’ Therefore, parties should learn from the issues in adjudication to ensure the litigation proceedings are more streamlined and submissions are airtight. Be wary not to simply replicate the statements of case in the litigation proceedings. Had the alternative case been proposed from the outset, there would have been no need for these proceedings, saving the parties’ time and significant costs.