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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> The Stax Claimants Claimants v Bank of Novia Scotia Channel Islands Ltd & Ors [2007] EWHC 2438 (Ch) (24 October 2007) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2007/2438.html Cite as: [2007] EWHC 2438 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		24/10/2007

Mr Justice Warren :

1. This judgment deals with a number of different applications. The first two applications concern amendments to the Particulars of Claim and to the Defences in the selected cases. In the case of each application, a number of proposed amendments are not opposed and I allow them to that extent.

Particulars of Claim

2. The application is made in the Allan Parker claim. Similar amendments are sought in the other selected cases and, to the extent that I allow the amendments in that case, I allow them also in the other case.
3. Before dealing with the amendments which are opposed, I should mention the proposed amendment to paragraph 32(e). Paragraph 32 commences with an allegation that certain "express and/or implied" representations were made that BNS had carried out reasonable due diligence and that it had satisfied itself of a number of matters. It is sought to add a new matter namely that Stax had a professional indemnity insurance policy in place. Mr Yell has made it clear that the Claimants do not rely on any implied representation, but only on an express representation. On that basis, Mr Herbert does not oppose the amendment. However, the amended pleading should be redrafted to make that clear. If it is made clear, I will allow the amendment subject to suitable re-drafting.
4. Paragraph 49 contains an allegation that BNS owed a duty of care in tort not to make negligent misrepresentations to the Claimant. That is an allegation which, in those general terms, is contested. Paragraph 50 contains an allegation that, in breach of that duty, representations were made which were false in that BNS had not carried out the necessary and reasonable due diligence which it is alleged it should have to satisfy itself that the Stax Scheme was lawful and tax compliant and that the Ashgaine Scheme was authorised by the Inland Revenue.
5. It is sought to add a new pleading (paragraph 50A) that, in breach of the duty just mentioned, the representation pleaded at paragraph 32(e) (which I have just dealt with) was false in that Stax was uninsured. In this context "Stax" has the meaning given to it in the pleading.
6. At this point, I need to explain something further. According to the definition in the Particulars of Claim, "Stax" was defined to mean Stax Consultancy Ltd. Correspondence with the Claimants was sent on headed notepaper containing the name "Stax Consultancy" in its heading. At the foot of the page appeared a rubric: "Stax Consultancy Ltd t/a Stax Consultancy". Relevant letters were signed by Mr Rumball who, unlike Mr Kumar, was a director of Stax Consultancy Ltd. Company accounts for the relevant periods describe Stax Consultancy Ltd as a dormant company and show no material income or expenditure. On this basis, the Claimants assert that the contracts apparently made with Stax Consultancy Ltd were not in fact so made and must have been contracts with someone else, and that "Stax" or "Stax Consultancy" must have been a reference to Mr Kumar and/or Mr Rumball or some other entity. One of the proposed amendments (which I allow and to which no objection is taken) is to amend the definition of "Stax" to reflect what I have just described. BNS does not accept the Claimants' assertion; there is an issue whether the Claimants contracted with Stax Consultancy Ltd or someone else.
7. This point is relevant to the insurance position. A policy of insurance has been disclosed ("the Policy"). The insurer is Wren Insurances at Lloyds. The insured is stated to be Stax Consultancy Ltd. On that basis, if the Claimants are correct in saying that a contract with Stax Consultancy is not a contract with Stax Consultancy Ltd, then the Policy clearly does not cover any of the activities of the Stax Consultancy and thus affords no protection to the Claimants.
8. Quite apart from that, the Policy lapsed on 30 September 2001 and was not renewed. It was a "claims made" policy. It excluded claims "arising from any advice given in respect of pensions". The premium was only £1,200 plus Insurance Premium Tax, and yet it provided cover for £1,000,000 in respect of each claim made in the period of insurance. By the proposed paragraph 50A, the Claimants seek to allege that Stax (as defined) was uninsured alternatively that Policy would not meet claims the type and monetary amount that would be likely to be made if the Inland Revenue successfully challenged the Stax Scheme.
9. Moving on, paragraph 53 alleges a duty of care in tort, although it does not specify the scope of that duty. A number of breaches are alleged. It is sought to add by amendment a number of paragraphs (d) to (i) further particulars of breach. Paragraphs (d) and (e) allege a failure by BNS to ascertain that Stax Consultancy Ltd was a dormant company and failed to follow the principles of "KYC" (know your client) in that it thought it was dealing with Stax Consultancy Ltd when it was not. These are not opposed as amendments (although they are not accepted as correct).
10. Paragraphs (f) and (g) (which really go with paragraph 50A) are opposed; paragraph (f) alleges that BNS failed to ascertain that Stax was uninsured alternatively that the Policy would not meet claims of the type likely to be made if the Inland revenue successfully challenged the Stax Scheme; and paragraph (g) alleges that BNS believed that Stax did have professional indemnity cover for tax advice given to the Claimants of £1,000,000 per transaction when Stax (as opposed to Stax Consultancy Ltd) did not have such cover and in any event would not meet claims of the type likely to be made if the Inland Revenue successfully challenged the Stax Scheme.
11. There are, of course, significant hurdles in the way of the Claimants' argument on this part of their case. They have to establish a relevant duty of care on BNS, they have to establish a breach of that duty (in practice a misrepresentation concerning insurance) and they have to establish reliance by a Claimant on the alleged express representation.
12. Mr Herbert submits that the Claimants' case in relation to establishing a relevant duty of care and (if contrary to BNS's case, there is a duty) in relation to breach of such a duty is so weak that they should not now be allowed to introduce it for the first time by amendment.
13. As to the duty, Mr Herbert relies on a number of cases to demonstrate that in cases where one might think the case for imposing a duty was stronger than in the present case, no duty was imposed. Thus in Argyll v Beuselinck [1972] 2 Lloyd's Rep 172, there was no duty to advice on tax in relation to a transaction in respect of which the solicitor was advising; to be contrasted with that is Hurlingham Estates Ltd v Wilde & Partners [1997] STC 627 which suggests that the position today is that a solicitor will be expected to advise about the tax aspects of a transaction unless he makes clear that he is not doing so. Mr Herbert says that BNS had not undertaken any duty to advise in relation to the transactions which the Claimants entered into and that, accordingly, the circumstances in which a duty will be imposed are narrower even than in Argyll. He cites Lord Browne-Wilkinson in White v Jones [1995] 2 AC 207 to the effect that the law does not impose a general duty of care to avoid negligent mis-statements or to avoid causing pure economic loss even if foreseeable, although such a duty of care can arise if there is a special relationship between the parties. He relies particularly on the passage where Lord Browne-Wilkinson says that, as yet, only two categories have been identified in which such a special relationship has been identified namely:

"(1) where there is a fiduciary relationship and (2) where the defendant has voluntarily answered a question or tendered skilled advice or services in circumstances where he knows or ought to know that an identified plaintiff will rely on his answer of advice. In both these categories the special relationship is created by the defendant voluntarily assuming to act in the matter by involving himself on the plaintiff's affairs or by choosing to speak."

14. Mr Herbert also on Frost v James Finlay Bank Ltd [2002] Lloyds LR Professional Negligence 473 as a strong example, in an insurance setting, of a refusal to impose a duty of care. He says, in effect, that the present case is a fortiori.
15. He also submits that the contract between the Claimants and the Stax Consultancy was a contract with Stax Consultancy Ltd; that is the only way, he says, in which the relevant correspondence can be read. Further, the Policy on its face does cover the advice given which was tax advice rather than advice within the pensions exclusion. He says that the small premium was not such as to put BNS on notice that there was anything doubtful about the width and effectiveness of the Policy and that Mr Yell's submission to the contrary is to be rejected. He submits that Mr Parker clearly did not rely on whatever he had been told by BNS since he got Mr Knight to check the position for him. And finally he says that the reason the Claimants could not rely on the Policy was because it lapsed and because of the fraud of Stax, for neither of which BNS can be held responsible.
16. There is obviously force in Mr Herbert's submissions. But it is not my task at this stage of the proceedings to determine whether he is right or probably right. Other things being equal, I should allow the amendment if Mr Yell's case has a real prospect of success.
17. In relation to that, it seems to me that the question of the imposition of a duty of care is heavily fact dependent. It all depends on precisely what was said, not just about insurance, but also about BNS's belief in the effectiveness of the Stax Scheme and what it may have said about other aspects of due diligence. The insurance position is, after all, only relied on as one of a number of factors which go to a failure of due diligence in circumstances where, according to the Claimants, they were entitled to rely on BNS that it had done so and found nothing wanting.
18. Whilst I can see that there are great difficulties in the way of the argument that the contract was other than with Stax Consultancy Ltd and, perhaps lesser, difficulties in the way of the argument that the Policy was only unavailable because of lapse or fraud on the part of Stax, the argument could succeed quite apart from those points. The Claimants may, on the facts as eventually established, establish special circumstances in which a duty should be imposed in accordance with the observations of Lord Browne-Wilkinson which Mr Herbert relies on; they may, on the facts, establish a misrepresentation about the insurance position or, at least, it might be established that BNS failed to carry out proper investigations of the Policy which might (depending on the facts as eventually established) indicate that the Policy was of doubtful validity.
19. In these circumstances, my judgment is that all of these amendments should be allowed. This may, I appreciate, make it necessary to obtain, either by request or a third party disclosure order, further documentation relevant to the Policy from the insurer and the broker, but, so it seems to me, it will be the Claimants who will be keen to obtain that information. I therefore grant Mr Parker's application subject to the clarification mentioned of paragraph 32(e)

Defences

20. BNS seeks permission to amend its defences in the selected cases by adding material in relation to the quantum of damage. It will be remembered that, in May of this year, I refused permission to make a number of amendments to the defences. It was envisaged that BNS would make a further application, but I required the proposed amendments to be properly articulated and supported by evidence, including expert evidence, if necessary. I appreciate that BNS has had a lot to do in the intervening period and that its legal team has been under pressure on a number of fronts. Nonetheless, it is deeply unsatisfactory that the application which is now made is made at this comparatively late stage in the proceedings. It is a matter of some surprise to me that the expert evidence necessary to support the claim has only very recently been put in writing in a form which could be presented to the Claimants and to the Court.
21. The amendments which it is now sought to make very different from those which were previously sought. They are not simply more fully particularised versions of the earlier amendments, but are different in their nature.
22. The amendments are supported by a report from Mr Richard Crease (dated 12 October 2007), who is an actuary working with the consultancy OAC plc.
23. Amendments in similar form are sought to be made to all of the selected cases. I take for the purposes of discussion the Allan Parker case. The amendments which are opposed are found in paragraphs 53C and following. These follow on from an existing pleading in what, in the amended Defence, is now paragraph 53 which contains the plea that

"as against any income tax which the Claimant may incur or have incurred by reason of his participation in the Stax Scheme, credit must be given for the benefits and/or advantages which he has obtained or is entitled to obtain by having participated in the scheme as compared with the benefits under the pension scheme or schemes of which he was a member before so participating."

24. These benefits are set out in paragraphs (1) to (6) of paragraph 53C which, to summarise, are as follows:

(1) By entry into the Stax Scheme, Mr Parker has achieved liberation of his pension find assets from the scope of income tax and capital gains taken down to and including the winding-up of his interests in the Stax Scheme and from the regulatory system applying generally to pension schemes.

(2) By entering into the Stax Scheme, Mr Parker has avoided any issue arising from the over-funding of the scheme of which Mr Parker was a member and from which the payment was made to the Stax Scheme.

(3) The benefits which Mr Parker would have enjoyed had he not entered into the Stax Scheme would have been those which he would have remained entitled to under his previous pension scheme namely (a) a possible tax-free lump sum with (b) the remainder of his fund being used to provide an annuity at latest at age 75. Prima facie, the annuity would suffer income tax at 40%.

(4) The remainder referred to in (3)(b) above, is either 100% of the fund (if no lump sum is payable) or less than that depending on a number of factors. Mr Parker is put to proof of the relevant details if he claims that the remainder is less than 100%.

(5) Paragraph (5) is the central allegation which is said to flow from the matters set out in paragraphs (1) to (4). It provides:

"Consequently, the value to [Mr Parker] of his entitlement under sub-paragraph (3) above immediately before his entry into the Stax Scheme falls to be reduced by a sum equal to 40 per cent (or other marginal rate of tax as aforesaid) of the transfer value received by him or on his behalf in respect of his pension benefits under [Mr Parker's] pension policies."

(6) That sum, it is alleged, falls to be deducted from the amount of tax suffered by Mr Parker under section 600 Taxes Act and which is claimed as damages.

25. Paragraph (1) requires some explanation. Claimants have achieved overall settlements with the Inland Revenue. They have paid an amount by way of tax and penalties which subsumes both the tax charge (and penalties) on the payments out of their individual pension plans or schemes and also income tax and capital gains tax incurred in respect of income and gains derived from the payments once received. The date referred to, however, is not correct: it should be the date of the settlement with the Inland Revenue rather than the date of winding-up of his interest in the Stax Scheme (whatever that phrase may mean).
26. Paragraph (2) describes a suggested benefit. However, it is not stated how this benefit is to be quantified (either in the pleading or in Mr Crease's report); and, indeed, the fact of a surplus at the time of the transfer does not mean that a surplus would continue to exist. I note that it is not expressly pleaded that there was a surplus so that it is not clear on the face of the pleading that there was, in fact, any benefit such at that alleged.
27. Paragraph (3) sets out what might reasonably be expected. Whether a lump sum is actually available (and its amount) turns on the provisions of Mr Parker's scheme. The tax rate of 40% assumes that existing rates of tax will continue and that Mr Parker will be a higher rate tax payer (and Mr Parker is expressly put to proof that his marginal rate would be less than that if he so alleges). It is not, of course, possible to predict future tax rates: if it is correct to take tax into account at all, the rate can only be a matter of assumption. The pleading is not correct in its detail since it makes no mention of other benefits which one might expect the scheme would provide, for instance a widow's pension and a lump sum death benefit in the event of death before pension is drawn.
28. As to paragraph (4), the principle is not contentious, or so it seems to me, although whether it is for Mr Parker to prove that he is entitled to a lump sum may be more open to question.
29. Paragraph (5) pleads very specifically that the value to Mr Parker of his entitlement under his scheme falls to be reduced by 40% (or other marginal rate of tax) either of the whole or of the remainder (ie after deducting the lump sum) of the transfer value received by him. This is the first reference which one sees to transfer value. I do not think it is correct, particularly given the approach of Mr Crease which values Mr Parker's interest (after allowing for the lump sum) as 60% of the underlying fund not 60% of some (smaller) transfer value let alone of the sum actually paid out as part of the arrangement leading to the payment to the Stax Scheme.
30. It seems to me, even without any expert evidence, that it must be well-arguable that the value to Mr Parker of his interest in his pension fund (after taking account of the lump sum to which he would be entitled) will depend on his own personal income tax position. The interest itself – that is to say, principally the right to have the remainder applied in the purchase of an annuity – does not depend on Mr Parker's income tax position (any more than the value of an asset depends on the owner's capital gains tax position). But the value to him of that interest may well depend on his income tax position. Thus assume, the remainder of the fund, when Mr Parker draws his pension, is worth £100,000 and assume an annuity rate of 7.5%. The annuity produced is £7,500 pa. If Mr Parker has no other income, his tax rate will be very low and he will retain most, if not all, of that amount. But if he is a higher rate take payer, he will retain only 60% at current tax rates, that is to say £4,500. It must then be arguable that the latter, net, amount is worth less to Mr Parker than the former amount. The question then is how that difference is to be assessed in money terms. BNS claims that the correct approach is simply to reduce the fund available (ie what remains after allowing for the lump sum) by 40% or whatever Mr Parker's marginal rate of tax in fact is. This is the approach advocated by Mr Crease.
31. An alternative approach might, as a matter of law, be correct. One such approach might be to assess damages as the cost to Mr Parker of replacing the net income which he has lost. In that case, Mr Parker would have to be awarded as sum sufficient to enable him to buy an annuity leaving him with a net amount of £4,500 pa. Where an annuity is purchased using funds within the pension scheme, the whole of the annuity is taxed as income; but where an individual purchases an annuity, the annual payments are treated partly as capital and partly as income. Accordingly, it will cost less for Mr Parker to purchase that income than it would to replace the pension fund to enable the income to be provided out of the fund. Mr Parker's damages would, on this approach, be less than the fund which had been lost as a result of entering into the Stax Scheme. This is an approach considered, but rejected, by Mr Crease.
32. Mr Yell has not addressed this alternative approach – he does not need to do so it is not sought to be pleaded. He has, however, addressed the pleaded case. He says that it is misconceived and that Mr Crease's report is inadequate and does not, in any event, support the pleading.
33. I can well see that there will be many aspects of Mr Crease's report that would be challenged if I allow the amendments and if Mr Crease's report stands as BNS's expert evidence. For instance, free assets will suffer income tax or capital gains tax so that the accumulating return until retirement will be at a lesser rate than for funds retained within the tax-free environment of the pension scheme. There could be endless arguments about how much of the return on free assets would be capital and how much income. It is not clear to me that Mr Crease's approach properly reflects that factor. Further it takes no account of how the marginal rate of tax might be affected by the use of tax reliefs and efficient tax planning and, of course, simply assumes an ongoing top rate of 40%. No account is taken of death benefits payable before vesting of the pension/annuity or of any benefits apart from Mr Parker's own pension payable from the pension scheme. He has assumed a discount rate from the expected date of retirement to the date of assessment of loss equal to the growth rate of the funds, which may be open to debate. He has not considered at all the impact which the availability of income drawdown may have on his approach. All of these factors cast some doubt on the proposition that the value of the annuitant's interest is simply 60% of the underlying fund (or some other percentage reflecting the annuitant's marginal rate of tax) as is pleaded and as is supported by Mr Crease's report.
34. Nonetheless, I consider that it is well-arguable that credit must be given for the fact that any annuity purchased out of assets within Mr Parker's pension scheme will bear tax at his marginal rate of income tax. Mr Crease's report indicates the way in which he considers that that credit should be calculated, a way which is reflected in the proposed amended Defence. I therefore allow the amendment sought to be made by paragraph 50C. Having been given this opportunity to formulate its case, I do not expect to see any further application to amend this part of BNS's pleading. The Claimants are entitled to know the case which they have to meet.
35. Mr Yell says that Mr Crease's report adds nothing to what could, in any event, properly be argued without it. He invites me to order that the report should not be admitted in evidence and that the costs of it should not be allowed whatever the outcome of the proceedings. I decline to make such an order or to give such a direction. Those are aspects which I do not consider it appropriate to deal with at this stage, and will probably not do so until after trial.
36. Paragraph 50D of the proposed amended Defence raises the point that, even if the assets had remained in Mr Parker's pension scheme, they would have been subject to annual administration charges which are very similar in percentage terms to the charges which BNS has in fact levied. Accordingly, there is, it is alleged, no loss by reference to the fees charged by BNS. Mr Yell says that this amendment should not be allowed. He submits that the charges will impact on Mr Parker in different ways depending on whether they are levied in the pension scheme itself or on free assets of Mr Parker. This he says is because of the different tax treatment of funds in the pension scheme and funds which are free assets.
37. However, if BNS is correct in its approach to the valuation of Mr Parker's interest in the assets within his pension scheme, it is not clear that Mr Yell's point is correct. Thus, on BNS's approach to valuation, a fund of £100 in the pension scheme is equivalent in value to a fund of £60 in Mr Parker's hands. Fees of 75 pence pa on the fund in the scheme (£100) are thus equivalent to fees of 60% of 75 pence (ie 45 pence) on the fund of equivalent value (£60) in the hand of Mr Parker. Suppose that Mr Parker has received £R after deduction of all tax and charges; that is equivalent to a fund of £(100/60 x R) within his pension fund on BNS's approach to valuation so that fees of £(0.75% x (100/60 x R)) within the fund are equivalent to costs in relation to free assets of £(0.75% x R). Paragraph 53D does not assert that the actual fees are the same in amount: it asserts that fees would be charged at the same percentage. BNS's pleaded case is at least arguable. I allow the amendment.
38. The amendments proposed by paragraph 53E assert, in effect, that Mr Parker was under a duty to mitigate his loss by making payments into an approved pension scheme to the extent that he had net relevant income available in any year. To that extent, he would be able to claim tax relief and thus to mitigate the loss which he claims to have suffered by reason of having had to pay tax under section 600 on the payment of funds to him. A similar point is made in paragraph 53F in relation to contributions to a stakeholder scheme to the extent that Mr Parker does not have net relevant income in any year, enabling contributions of £3,600 pa to attract tax relief.
39. Mr Yell says that this all far too speculative. What Mr Parker does with the money actually received as a result of the arrangements he entered into does not impact on his loss. Thus if he invests it in a phenomenally successful investment, that does not reduce the loss for which he can recover any more than an investment which becomes worthless increases the loss. He cannot, it is said, be obliged pursuant to his duty to mitigate be treated as though he had utilised money in making pension contributions which attract tax relief.
40. Mr Yell says that, if this duty to mitigate a tax loss subsists, then Mr Parker would also be under a duty to make other sorts of investment attracting tax relief, such as investment in Enterprise Zones. He says, and I agree, that such a duty cannot possibly exist. But that is entirely different from a duty to mitigate by investing (so as to obtain tax relief) in a vehicle which matches, if not precisely then very closely, the vehicle within which, had BNS not been negligent as Mr Parker alleges, the relevant assets would have remained. I do not think that there is anything in this particular aspect of Mr Yell's argument.
41. In any case, it is said that Mr Parker might want to utilise his net relevant income to make pension contributions quite apart from any duty to mitigate. Were he to do so, there would be no relief left to use in mitigation of his loss. I consider that that is an unanswerable point where it can be shown that contributions have in fact been made in the past or would be made in the future. But it is no answer to the point if, in fact, such contributions have not been made in the past: in that case, net relevant income was not, in fact, utilised and therefore was available to meet any duty to mitigate (if there was such a duty).
42. Then it is said that it cannot possibly be correct that the duty to mitigate goes on for ever. Mr Yell submits – correctly so it seems to me – that it cannot possibly be said that for years and years Mr Parker must consider, pursuant to his duty to mitigate, whether to make further contributions to a pension scheme in order to claw back the tax which he has previously had to pay. Mr Herbert accepts that proposition but says that it has never been his intention to make such an argument. Rather, the duty continues only for a reasonable time which, in the circumstances of the present case, would be up to the date of assessment of the loss following judgment. If there is a duty to mitigate at all in the manner which Mr Herbert submits there is, he is clearly right to say that it only continues for a reasonable time. I am not at all sure that the reasonable time can continue to run until the date of assessment of damages. But I cannot say that that point is not properly arguable.
43. I do however see the force of Mr Yell's argument that there is no duty to mitigate in the way which Mr Herbert advocates, particularly so far as concerns paragraph 50F and use of the £3,600 pa allowance. It is not, however, clearly correct and I consider that there is a real prospect of success in the contrary argument.
44. The upshot is that the proposed amendments in paragraphs 50E and 50F should be allowed subject to one point which is that the pleading should include an express acknowledgment that the duty to mitigate cannot extend beyond the date of assessment of damages and subject to the point made in paragraph 25 above.

Mr Parry's report

45. BNS has obtained an expert report from Mr Parry concerning the roles and duties of an IFA in the circumstances in which the IFAs in the present case found themselves. Mr Yell has a number of criticisms of this report which will, no doubt, in due course be matters for cross-examination and submission. For present purposes I am concerned with a number of passages which are said to be irrelevant or not a proper matter for expert comment at all. Mr Yell wishes to have these passages deleted from the report (or at least to obtain an order that they may not be relied upon) otherwise expert evidence will need to be adduced to deal with these passages, thus incurring unnecessary expense.
46. The first section to which objection is taken is paragraph 4.3 and its sub-paragraphs. Mr Herbert accepts that this paragraph adds nothing to the debate and should be deleted.
47. Mr Yell asks me to order the deletion of large parts of the report which contain Mr Parry's summary of the material which he has read. I do not consider that it would be right to do so. Although it is largely a summary of documents and information in relation to which a more accurate picture will be obtained by referring to the sources from which Mr Parry derives his information, it is necessary to understand what parts of the material are relevant to Mr Parry's opinion; he needs to set out what he sees as the relevant factors.
48. However, in paragraph 5 of his report, Mr Parry expresses a number of conclusions which are not matters within his expertise and which are really questions for the court. Mr Yell asks me to strike out the whole of this paragraph. Mr Herbert does not concede this issue but had no serious argument which he could present in opposition. I accede to Mr Yell's request.

A new selected case?

49. The last, and most problematical, application before me relates to the selection of a further case to be dealt with at the forthcoming trial. I say application, since Mr Yell asks me to select the case of Mr and Mrs Ersser; there is no formal application, the matter having been raised in a skeleton argument produced by Mr Yell. Mr Herbert complains about this manner of raising matters as he does in relation to a number of other matters which have been raised in the course of these proceedings other than by application. Notwithstanding that complaint, he did not suggest that he was not prepared to meet the (non-)application nor did he seek an adjournment when I asked him if he wanted one (a) to enable the making of a formal application and (b) to give him further time to meet the application.
50. The background to the application is that BNS has made the decision not to call Mr Le Scelleur, a senior officer of the bank involved in the Stax Scheme on behalf of BNS, to give evidence. Mr Yell tells me that this decision came as a considerable surprise to the Claimants; I am not surprised to hear that – it came as a considerable surprise to me also, as I will explain in a moment. Accordingly, the Claimants have been looking at ways in which Mr Le Scelleur might be brought to court in a way which would enable him to be cross-examined by the Claimants' QC or by Mr Yell. They have hit upon the idea of adding the Ersser cases as a further selected case. In that case, it is alleged that Mr Le Scelleur made express misrepresentations which now turn out to have been incorrect and which according to Mr Yell, he must have known to be incorrect at the time he made them. If Ersser is added as a selected case, BNS this will in practice put pressure on BNS to call Mr Le Scelleur otherwise it will have to accept the evidence of what he said. Mr Yell frankly admits that the only reason for wishing to add Ersser as a selected case is to put this pressure on BNS: the case of itself does not raise any wider issues which are not already raised in existing selected cases.
51. Mr and Mrs Ersser's evidence is that Mr Le Scelleur made a direct presentation to them in September 2000 when he assured them that BNS would not be involved with the Stax Scheme "unless it was certain that it was 100% legitimate". It is alleged that Mr Le Scelleur knew this statement to be untrue since he had, by then (in August), been interviewed (along with other BNS officers) under caution by the Inland Revenue.
52. Mr Yell accepts that the addition of Ersser to the proceedings will cause some additional work but not a huge amount and not a disproportionate amount. Disclosure has already been given by Mr and Mrs Ersser and the Claimants would not seek to bring any further evidence over and above that which they have already served. Mr Yell is even willing to accept that the case should continue without BNS having to give further disclosure, thus avoiding any argument that an obligation to give such disclosure would be so burdensome as to be unreasonable to impose at this stage of the proceedings. Further, I am told by Mr Yell that the way in which BNS has dealt with the cases which have already been selected is to have produced the long generic witness statements from Mr Brierley and Mr Quant with only short witness statements being served as further evidence in each selected case. Mr Herbert did not suggest that that was not factually correct. I have seen the generic statements but not the others. Mr Yell says that it is reasonable to expect that Ersser would be dealt with in the same way so that, overall, the burden on BNS would not be huge. Indeed, it is reasonable to think that some work must have been done in respect of Ersser in order for the pleadings in that case to have gone as far as they have.
53. Mr Herbert says that to add Ersser at this stage would be unfair and lead to injustice. He says that to prepare for the case would be a colossal task and would distract his side from all the other work which has to be done to prepare for trial. I think that his concerns should be reduced were I to dispense with the need for further disclosure by BNS. He further submits that the existing selected cases were selected after careful consideration by the parties and the court. The selection is designed to cover, so far as possible, the various issues which arise across the claims of all of the Claimants and that Ersser adds nothing to that. It was not even a case which either side put forward for selection. It would be improper, he submits, to add Ersser as a selected case simply to attempt force BNS's hand concerning Mr Le Scelleur.
54. I should explain why the decision not to call Mr Le Scelleur came as something of a surprise to me. In various interim applications in the past, his name has been regularly mentioned both by Mr Yell and by Mr Herbert. I had formed the impression that he was an important person in BNS's involvement in the Stax Scheme and in dealings with Mr Kumar. The purpose of selecting cases was (a) to make the trial process manageable but (b) to do so in a way which presented the court with the whole range of issues which arise. In that context, I would have expected to be presented with a full picture of the way in which the Stax Scheme developed and BNS's involvement in the arrangements. That presentation by BNS would, I had thought, be tested by cross-examination of witnesses. If it had been known when cases were being selected that Mr Le Scelleur would only be called if one out of a particular sub-set of cases were selected, that would have been a powerful argument for selecting such a case to ensure that the court was given the full picture. Accordingly, I do not agree with Mr Herbert that it would be inappropriate to add a further selected case simply because the reason for doing so would be to obtain evidence from Mr Le Scelleur provided that there is time to do so without either prejudicing the trial date or compromising BNS's ability to prepare for trial.
55. There is, however, no certainty that BNS would call Mr Le Scelleur even if Ersser were added as a selected case. Indeed, if Mr Le Scelleur accepts that what Mr Ersser says is correct, there would be no more reason to call him if Ersser is added than there is at present. BNS may as well, it might be thought, live with the inevitable acceptance of Mr Ersser's evidence if he would be unable to deny the truth of it.
56. There is, however, one further aspect which needs to be mentioned. Mr Herbert tells me that BNS is contemplating making an application to have various passages of some (unspecified) witness statements excluded from the evidence on the basis that such passages are irrelevant to the issues in the selected cases. On this basis, he says that Mr Ersser's evidence should be excluded altogether. In particular, he says that he will argue that what Mr Le Scelleur may have said to Mr and Mrs Ersser has no bearing on the claims of the Claimants in the selected cases. If that is correct, then it is of course correct whether or not Ersser is also added as selected case. However, if what Mr Le Scelleur said to Mr and Mr Ersser is, contrary to what Mr Herbert says, germane in some way to the position of BNS vis a vis the Claimants as a whole (other than as simply prejudicial material) then any application to exclude it should fail.
57. In all the circumstances, I do not propose to add Ersser as a selected case, at least at this stage of the proceedings. Although there are several weeks until trial, I am acutely aware that the parties are already working under enormous pressure (partly, I am afraid, because some aspects of the litigation were not dealt with long ago when they could have been). Although I do not accept that the task facing BNS would be as huge as Mr Herbert suggests, I do accept that there would be undesirable disruption. That by itself would not deter me from adding Ersser if I thought that it would result in Mr Le Scelleur giving evidence and being made available for cross-examination. I am, however, very doubtful that that would happen. Further, at present, Mr Ersser's evidence has not been excluded and it is therefore open to the Claimants to comment adversely on Mr Le Scelleur in reliance on it (although they will not, of course, have the advantage of a wide-ranging cross-examination of him). However, if it is in fact sought to exclude that evidence, the balance shifts to some extent in that, if excluded, there is no longer the material before the court on which to criticise Mr Le Scelleur in that respect.
58. If Mr Herbert is going to make an application to exclude any evidence, he should do so as soon as possible. I would expect it to be prepared by the time of the next CMC in November. At the same time, I would like to be told by him in more detail of the burden which adding Ersser would impose on BNS and what additional witnesses (if any) would need to be called. If no extra witnesses are needed, I would like to have some idea of the additional burden of providing further evidence from those witnesses who are being called. I would also like to be given a good idea of the work which would be involved in further disclosure by BNS in relation to Ersser. Finally, I wish to be told whether BNS would in fact call Mr Le Scelleur if Ersser were to be added. If he is not to be called, it may be that adding Ersser will in fact not lead to much extra work. I thus leave open the possibility of adding Ersser at the next CMC but decline to do at this stage.