“PLEADINGS ARE NOT A GAME OF LUDO”: TESCO REFUSED PERMISSION TO WITHDRAW ADMISSION

In SL Claimants v Tesco Plc [2019] EWHC 3312 (Ch) Mr Justice Hildyard refused an application by Tesco PLC to withdraw an admission.   There is a detailed consideration of the factors to be considered when a party seeks permission to withdraw an admission.

“I do not think what is proposed would cause the loss of the trial date; nor do I think it would add to the length of the trial in such a way as could not be accommodated; but I do think it would destabilise the final phase of trial preparation.”

THE CASE

The claimants brought an action against Tesco alleging that it overstated its profit was overstated in a Trading Statement made in August 2014.  Tesco originally admitted that the profits were overstated.  Tesco sought permission to withdraw that admission.

THE GROUNDS OF THE APPLICATION

The grounds for the application was that the figures were incorrect by £76 million – and that didn’t matter much.

    1. If permitted to withdraw that admission, Tesco now wishes to advance a defence to the effect that the statement in the August Trading Update which is relied on by both sets of Claimants, which is that “trading profit for the six months ending 23 August 2014 is expected to be in the region of £1.1bn. (emphasis added), was not of itself untrue or misleading.
Summary of Tesco’s arguments
  1. More particularly, Tesco now wishes to contend that further analysis has demonstrated that the figure for trading profit was overstated by £76 million, rather than the greater sum of £250 million which Tesco had originally announced it to be in its corrective announcement to the market on 22 September 2014; that the resulting correct figure for expected trading profit for the relevant period was £1.024 billion; and that £1.024 billion is indeed “in the region of £1.1bn.”

THE JUDGMENT ON WITHDRAWAL FROM ADMISSIONS

The judge considered the basis of the application, the relevant rules and the prejudice allowing the application would cause.

Withdrawal of the admission: how the court should exercise its discretion
    1. As Briggs J (as he then was) observed in the Kojima case [supra] at [18] – [19], the power of the court to permit withdrawal of an admission pursuant to CPR 14.1(5) is discretionary; but it is usually to be exercised in accordance with the criteria set out in paragraph 7.2 of CPR PD14, which represent a useful and uncontentious distillation of earlier authority. This provides as follows:

“In deciding whether to give permission for an admission to be withdrawn, the court will have regard to all the circumstances of the case including –

(a) the grounds upon which the applicant seeks to withdraw the admission including whether or not new evidence has come to light which was not available at the time the admission was made;

(b) the conduct of the parties, including any conduct which led the party making the admission to do so;

(c) the prejudice that may be caused to any person if the admission is withdrawn;

(d) the prejudice that may be caused to any person if the application is refused;

(e) the stage in the proceedings at which the application to withdraw is made, in particular in relation to the date or period fixed for trial;

(f) the prospects of success (if the admission is withdrawn) of the claim or part of the claim in relation to which the offer was made; and

(g) the interests of the administration of justice.”

    1. However, these are not cumulative requirements; they are all matters to be taken into account in the overall assessment of the Court’s discretion. The weight to be attached to each of them depends upon the circumstances of the case. As Ward LJ explained in Woodland v Stopford [2011] EWCA Civ 266 at §26 (in the context of pre-action admissions):

“It is quite clear to me that CPR 14.1A(3) confers a wide discretion on the court to allow the withdrawal of a pre-action admission and paragraph 7.2 of Part 14 of the Practice Direction lists the specific factors the court must take into account in addition to the need to have regard to all the circumstances of the case. These factors are not listed in any hierarchical sense nor is it to be implied in the Practice Direction that any one factor has greater weight than another. A judge dealing with a case like this must have regard to each and every one of them, give each and every one of them due weight, take account of all the circumstances of the case and, balancing the weight given to those matters, strike the balance with a view to achieving the overriding objective. Cases will vary infinitely and the weight to be given to the relevant factors will inevitably vary from case to case. Sometimes the lack of new evidence and the lack of explanation may be the important considerations; in others prejudice to one side or the other will provide a clear answer and in all the interests of justice will sway the balance. It would be wrong for this court to circumscribe the manner of the exercise of this discretion or to give any more guidance than is trite, namely, carry out the task set by the Practice Direction, weigh each of the identified factors as well as all the other circumstances of the case and strike a balance with due regard to the overriding objective.”

Grounds for withdrawal: para 7.2(a)
    1. As to its grounds and reasons for the withdrawal of admission that it seeks, Tesco frankly accepted that its application is based, not on any change in its knowledge or information or newly available evidence, but on a reappraisal of its case now that it has come to focus more clearly on two related considerations of which it was well aware but had not appreciated the full combined significance:

(1) the Claimants plead their case about the falsity of the August Trading Update only with reference to the figure for expected trading profit in H1 2014/15; and

(2) a correction of the cumulative overstatement as at the end of H1 2014/15 (some £284 million) would not affect the trading profit metric for that period, save for the £76 million that related to H1 2014/15.

    1. The Claimants submitted that the fact that it could not rely on any new evidence or change of circumstances, and had been content to rest on its pleading in this regard for nearly three years, tilted the balance very much against Tesco. They relied in this context principally on the approach of Phillips J in Aldersgate Investments Ltd v Bank of Scotland Plc and Anr [2018] EWHC 2601 (Comm), where he stated as follows at [11]:

“In proceedings of this size, where admissions have been made, sensibly, of regulatory findings and the case has proceeded on that basis and where there is nothing which has happened which would explain a change in stance, I consider that the first ground weighs very heavily indeed against the bank, taking on board the decision of the Court of Appeal, that I must nevertheless factor in all factors. I will consider them all below, but I have considerable sympathy for the views of Steel J [in American Reliable Insurance Company v Willis Limited [2008] EWHC 2677 (Comm)] that, in a case of this type, the applicant ought to be required to show that something had gone wrong in relation to the original admissions. Here these admissions were made, one has to take it, after very careful consideration and with full knowledge of what evidence was available to the bank to dispute them. The bank has simply changed its mind.” [My interpolation in square brackets]

    1. The Claimants relied also on that case for the further consideration that the closer the date to trial, and the greater the likelihood of dislocation if the withdrawal of the admission is permitted, the more cogent must be the grounds for the withdrawal application. At a late stage (in Aldersgate the application was being heard only two months before trial) a change of mind is not a sufficient justification, especially where the applicant is a sophisticated entity and well-advised.
    2. Tesco sought to counter this by pointing out that in litigation of this size and complexity it is inevitable that as matters progress, certain points will be focussed upon differently. Indeed, the pleadings in this case have evolved considerably over time. The Claimants have amended on a number of occasions to plead new alleged misstatements and to withdraw allegations of fraud that had previously been made. Tesco has not objected to any of those proposed amendments simply on the basis that they should have been pleaded at the outset of the proceedings.
    3. Mr Mumford also pointed out, and I accept, that the position in this case is different in important respects from that in the Aldersgate case, however similar the context might at first appear to be. In that case, it appeared that the bank had made the initial admissions because it had been “reluctant to contradict its regulators in public and it took the commercial view at that time to make the admission described” but had then, in quieter times when the regulatory spotlight had moved away and the noxiousness of the regulatory charges had faded, had a “change of heart as to what [was] in its commercial interests in relation to these allegations”. There was, in other words, some suggestion of ducking and diving. In this case, I do not understand any such thing to be suggested. Nor could such a suggestion plausibly be maintained, given the glare still on Tesco after two criminal trials, and the continuing press interest.
    4. I bear in mind also the candour of Tesco through its Counsel of bringing to the fore the gateway point. I also take into account that whilst the trial is close, it is many months further away than was the case in Aldersgate.
    5. I also appreciate, of course, that the process of review, possibly with a pair of fresh eyes, may throw up points even at a late stage, and that the purpose of pleadings is to define what is truly in issue between the parties, including justified amendments if these can properly be accommodated. Pleadings are not a game of Ludo. Nevertheless though I do not think it has the overwhelming, near conclusive, weight ascribed to it in the case of the applicant bank in the Aldersgate case, this factor does, in my judgment, weigh against Tesco, which allowed its admission to remain for some 32 months, and whose decision to make it I must take to have been carefully considered by highly capable and experienced Counsel and Solicitors. Where all that is relied on as a change of mind, the burden of justifying any adverse impact on the proceedings seems to me to be particularly heavy. To permit the amendment at this stage would, I would anticipate, lead to a round of further pleadings and in all probability expert evidence, close to Trial even if not as close as was the case in Aldersgate. Tesco has every right to reconsider its case; but not to destabilise the proceedings.
Conduct of the parties: para 7.2(b)
    1. The Claimants further contended that Tesco has “exacerbated” any prejudice by “waiting several months” before making the application. They also referred back to the alleged unfairness of being allowed to withdraw an admission made in the regulatory proceedings. However, the first of these points, to the extent not already taken into the balance in the context of the previous factor, in reality goes more to the later factor of prejudice; and the second is largely subsumed in the “gateway point”. The Claimants did not otherwise emphasise this factor.
    2. Generally, it has not been suggested that Tesco’s conduct of these proceedings otherwise is a reason for refusing the application. I would accept that Tesco has approached these proceedings to date in a constructive and reasonable way. In short, I do not think this is a material point in the balance.
Balance of prejudice: paras 7.2(c) and 7.2(d)
    1. Tesco submitted that it should be readily apparent that if this application were to be refused, Tesco would suffer significant prejudice. This is, on any view, significant and high value litigation in which the SL Claimants seek damages in excess of £440 million and the MLB Claimants claim US$230 million. If Tesco’s construction of the August Trading Update were to be accepted, a significant part of the claim against Tesco would fall at the first hurdle because there would be no untrue or misleading statement and, therefore, no liability under Schedule 10A.
    2. However, my decision to refuse to permit Tesco to plead that the August Trading Update was not false and misleading largely, if not completely, neutralises this point. Even if I were to permit Tesco to plead its case that it was not the overstatement of £76 million for H1 2014/15 alone, but rather the cumulative effect of all the overstatements, which falsified the August Trading Update, the fact would remain that Tesco must, in my judgment, continue to be bound by the admission it made that the August Trading Update was false and/or misleading (as indeed Tesco accepts).
    3. Turning to the other side of the balance of prejudice, the Claimants submit that there would be material prejudice to them if Tesco were permitted to withdraw its admission and introduce the new plea; and I apprehend that this objection would continue even if the new pleading stopped short of the intended punchline.
    4. Whilst it is not for the court to plead for the parties, nor to formulate responses to proposed pleas, it seems to me almost inevitable that the upshot of permitting the proposed plea without the punchline is that the Claimants would amend to plead the other elements relied on by the FCA and in the DPA as leading to the conclusion that the August Trading Update was false and misleading, which Tesco could not then gainsay. In short, I have a strong impression that opening the gate would lead to a cul de sac.
    5. Such new pleas, which may well in any event be to no avail, would be likely to lead also to supplemental witness evidence, possibly further disclosure and, it could well be, further expert evidence as to the likely effect on a reasonable market participant of the actual terms of the August Trading Update.
    6. Again in summary, in my judgment, the balance of likely prejudice also weighs against Tesco.
Stage at which application has been made and trial date and length
    1. I can be very brief in relation to this factor, since I have largely taken it into account already. I do not think what is proposed would cause the loss of the trial date; nor do I think it would add to the length of the trial in such a way as could not be accommodated; but I do think it would destabilise the final phase of trial preparation. Even taking the date of assessment as being September 2019 when this application was first made, the fact that for so long Tesco was prepared not to dispute the pleading as to the falsity of the August Trading Update tells against any material modification of that approach.
Prospects of success of the claim to which the admission was made
    1. I can be brief in relation to this factor also, since again this matter is subsumed in the conclusions I have already reached. It seems to me that even if Tesco were to be permitted to contest the plea that a trading profit of £1.024 million, though £76 million short, was still “in the region of” the forecast actually given of £1.1 billion, it would nevertheless be bound to accept that the August Trading Update was false and/or misleading in its overall effect.
    2. Further, although I accept that there is a tendency for even the relatively financially numerate to discount the odd million in assessing a profit of more than a billion, the fact remains that a £76 million shortfall meant that the £1.1 billion figure was overstated by some 6.9%. As I also suggested in the course of the hearing, it is also difficult to imagine a good and honest basis for suggesting that a past profit was “in the region of” £1.1 billion if it had been appreciated to be materially less than that.
    3. Accordingly, though I would not wish, and do not need, definitively to determine that the proposed new case would in any event have no real prospect of success, it seems to me that its premise is counter-intuitive and its prospects would be frail.
The interests of the administration of justice
    1. The last, and in a sense compendious, factor to be taken into account in accordance with CPR 14PD.7 is the interests of the administration of justice.
    2. Perhaps not surprisingly, since although each of the factors is to be taken into account, the factors are simply analytical guides to what ultimately has to be an overall assessment to be made, and almost inevitably overlap, this factor too has largely been implicitly weighed in the preceding discussion, especially in considering the “gateway point”.
    3. There is always danger in reformulating the same basic point in a slightly different way. But, taking that risk, I would summarise the position with particular regard to this particular factor as follows. At the highest level of generality, I take Tesco’s previously publicly avowed position, and the perception it encouraged of its attitude, to have been that it does not wish to dispute, or be seen to dispute, on any technical or other grounds that the August Trading Update was false and/or misleading; nor has it wished in the past to advance technical disputes or issues of fine assessment of the materiality of constituent elements of the statement made. The point it now seeks to raise that a shortfall of £76 million does not mean that the trading profit was not “in the region of” £1.1 billion relies on a point of construction and an issue of materiality which, again at the highest of generality, is something of a departure from its previous stance and the perception of its attitude that it has previously sought to encourage.
    4. I do not need to consider whether it would amount to a “collateral attack” on the FCA Final Notice and the DPA, given Mr Mumford’s clear position on the “gateway point”. However, I do consider that even if the ‘new’ point is technically arguable, the interests of the administration of justice do not require Tesco to be permitted to raise it, but instead militate against a potentially disruptive change of position.
Conclusion
  1. For all these reasons, in my judgment, Tesco’s application to withdraw its admission should be refused. Tesco must in this context rest on their defence as they conceived it when they made the relevant admission.
  2. It seems likely to be argued that costs should follow the event. That may be difficult to resist. Presumably in anticipation of such a result (one way or the other) all parties have lodged schedules of costs for the purposes of summary assessment. I would not propose to undertake such an assessment, given the sums at stake. Assuming the incidence of costs is agreed, the parties may also be able to agree a suitable payment on account. Any issue outstanding can be pursued in the first instance on paper: if possible, a hearing should be avoided, especially given the likely difficulties of arranging a hearing in view of my other commitments, though, of course, a listing would have to be obtained if any of the parties require such a hearing.