Contract Facilities Ltd. v Estate of Rees & Ors

LORD JUSTICE ALDOUS: We were today to hear an appeal by a company called Contract Facilities Ltd against a decision and order of His Honour Judge Weeks QC of 6th December 2002. However, it appeared this morning that that appeal was struck out because of a failure by Contract Facilities to comply with an unless order made on 11th July 2003 by this court. In consequence, Mr Cogley, who appears today for Contract Facilities, sought relief from sanction under CPR 3.9. To deal with that application it is necessary to explain the nature of the proceedings and what happened thereafter.

The proceedings brought by Contract Facilities was for damages for breach of an agreement in writing. That agreement was between Contract Facilities and the shareholders of a company called Glaslyn Retirement Homes Ltd. That company had a wholly-owned subsidiary called Manor Hotel and Leisure Ltd. The assets of those companies consisted of two nursing homes and a hotel which were run by the shareholders. The agreement the subject of the action provided for the sale of the shares of Glaslyn for £1.45 million.

The issue of liability came before the judge. He set out the background facts. They were in summary these. In 1996 the shareholders wanted to retire and therefore sought a buyer for the business. A Mr Shuck was interested and it was agreed between him and the shareholders, subject to contract, that he would purchase the shares in Glaslyn using a company as a vehicle. The idea was that he would obtain the necessary finance from UCB and have a listing on the AIM market.

It was not until August 1996 that the solicitors for the shareholders were told that Contract Facilities was to be the purchasing company. On 6th September 1996 contracts were exchanged, with Mr Shuck signing on behalf of Contract Facilities and the shareholders signing personally. The effective date of completion was to be 31st October 1996, with power for one month's deferment upon notice.

Unknown to the parties, Contract Facilities had on 19th December 1995 been struck off under section 652 of the Companies Act 1985. The purchase price was not paid on 31st October and the completion date was deferred to the end of October. On or about the 19th or 20th November the shareholders' solicitors made a company search against Contract Facilities which brought to light that Contract Facilities had been struck off. They wrote on 20th November to Contract Facilities' solicitors, drawing to their attention the state of that company.

The result was that on 20th December 1999 an application was made for Contract Facilities' restoration to the register under section 653(2) of the Act. That application was supported by an affidavit sworn by Mr Shuck. The judge said this of it:

The application was successful, with the result that Contract Facilities was restored to the register on 18th March 1997. That brought into play section 653 of the Act.

In these proceedings Contract Facilities claims specific performance of the contract, alternatively damages. Ultimately they only pursued their claim for damages. The shareholders contended that the agreement was void, alternatively came to an end for a variety of reasons. In consequence, they had not been in breach of the terms of the agreement.

For the purposes of this application there were two findings of fact made by the judge which are relevant. First, he held that there was no prospect of Contract Facilities, even if it had been in existence, being able to pay £1 million or any sum in that region in November 1996. Second, at most Contract Facilities could have expected to retain some 10 per cent of the purchase price under the terms of the agreement.

The judge went on to conclude, first, Contract Facilities were not ready, willing and able to complete the contract at the end of the November. In consequence Contract Facilities were in anticipatory breach of contract before 28th November. Second, the completion date could be extended only once and that time was of the essence at the second date. In consequence Contract Facilities committed a fundamental breach by not completing on 28th November. Third, the contract was lawfully terminated by the shareholders by the letter dated 29th November before Contract Facilities was restored to register and that restoration did not resurrect the contract. The judge therefore dismissed the claim and made a costs order against Contract Facilities subject to detailed assessment.

There followed an application to join Mr Shuck and other individuals to claim a costs order against them. The individuals were joined, but the application to make them liable for the costs of the trial was stayed pending appeal. There followed on 21st February 2003 an application by the respondents to impose conditions, which included giving security for the costs order on the appeal. That was subsequently dismissed.

On 24th March 2003 an application was made to the Court of Appeal to stay the order for costs. The court refused an unconditional stay of the order. In his judgment Waller LJ said this:

The result was that this court granted a conditional stay on payment of £50,000 into court, and it made an unless order for security for costs of the appeal to be paid by 4.00pm on 7th April 2003. 7th April came and the deadline of 4.00pm passed. Payment was made by cheque at 4.12pm. The explanation given for that was that Mr Shuck stated he had not appreciated that the order of 24th March was an unless order.

On 9th April the respondents started proceedings to have their costs assessed. The result was that there was a case management order that the Contract Facilities should supply their points of dispute by 25th May 2003. It should be noted that it is not possible for the court to grant an interim order for costs to be paid until the points of dispute have been received by the receiving party. It follows that delay in providing the points in dispute would be to the advantage of Contract Facilities because that would put back the time when any interim order for costs could be made.

On 1st May, a day before the points of dispute were to be delivered, Contract Facilities applied for an extension of time for the points of dispute to be served. That was granted on 15th May.

On 13th May an application was made to the Court of Appeal for relief from sanction under CPR 3.9. That was relief from the sanction for the order made on 7th April. That application came before Waller LJ on 13th May. He said this about the explanation as to why the order had not been complied with:

Waller LJ went on to consider whether an extension of time should be granted. He said this in paragraph 11:

I pause in the history to note that Waller LJ considered that the time had nearly come when relief from sanction should not be granted.

I return to the background facts. On 15th May 2003 Master Wright granted the appellant an extension of time for putting in their points of dispute, subject to an unless order. The points of dispute were served on 27th May and on 2nd June the respondents applied for an interim costs certificate. On 4th June Contract Facilities applied to His Honour Judge Weeks to vary the original costs order. That application appears to have been a step intended to delay an order for an interim payment, as its existence was deployed at the hearing before the Master which took place on 6th June. Master Wright did not accept that as an excuse and made an order for an interim certificate for payment of £37,000 to be paid into court within 14 days. The appellant was ordered to pay the respondent's costs assessed at £2,000.

The application to His Honour Judge Weeks to vary his order was dismissed on 24th June. There followed an application by the respondents to this court for security for costs. It came before the court (consisting of Waller and Hale LJJ) on 11th July, the appeal having been set down for hearing on 23rd July. The order made by the court was that unless the appellants paid the sum of £37,000 into court and the outstanding costs orders amounting to over £11,000 to the respondents by 4.00pm on 18th July, the appeal was to be struck out. In the judgment of the court, which is due to be handed down tomorrow, it said:

The result of that order of 11th July was that £37,000 had to be paid into court and a further amount of £11,000 had to be paid to the respondents' solicitors by 4.00pm on Friday 18th July, otherwise this appeal was struck out.

According to the evidence, cheques were sent on 17th July drawn on the account of a company called Worcester Property Company Ltd for £37,000 and the £11,000-odd to Mr Shuck's solicitors. They were then forwarded on. The cheque for £37,000 was paid into court and the £11,000 was given to the solicitors acting for the respondents.

The respondents requested special clearance from their bank of the cheque, but it bounced. As of today the cheque for £37,000 has not been cleared.

Mr Shuck has not come to court today. Nor has he supplied a witness statement as to the circumstances surrounding those events. That again has been done in a witness statement of Mr John Tasselli, who is a partner in the firm of solicitors who have the conduct of this matter on behalf of Contract Facilities. Mr Tasselli said this:

The CPR enables the court to grant relief from sanction. It sets out a list of the circumstances that will be specifically taken into account, but states that the court will consider all the circumstances of the case.

Mr Cogley reminded us that when deciding whether to grant relief it was necessary to exercise the discretion given by CPR 3.9 afresh and that the purpose of the rule was to enable this court to do justice, despite the failure of a party to abide by a court order. He submitted that the interests of justice were in favour of the appeal being heard as all the costs had been expended. Upon the evidence the failure to comply was not intentional. He described the failure as late compliance and not non-compliance. He also submitted that the failure had not affected the trial date. He went on to submit, I think, that the grant of relief was in the respondents' favour, as not only would they have the benefit of the cheques, but also have the personal undertaking of Mr Shuck.

I consider that Mr Cogley's submissions do not reflect the facts nor the justice of the situation. First, the history which I have reviewed shows attempts by the appellants to manipulate the judicial process so as to avoid payment of costs. Second, Mr Shuck has attempted to portray his position in a way that suits his case. In my view that must throw doubt upon his veracity. When he was seeking to argue against an order for security being made, he contended that he did not have the funds and therefore the order would stifle the appeal. He now seeks to persuade us that his undertaking that nearly £50,000 will be paid is good reason to grant the relief from sanctions. Third, there is no explanation why what is described as his company, Worcester Property Company Ltd, provided the cheque and no explanation is given as to why the cheques were only supplied on the last day, when he must have known that the money would not have been transferred for some days after the cheques were presented. Fourth he gave no explanation why the cheques did not bear two signatures, save that Mr Tasselli says that:

Sixth I consider whether Worcester Property Company Ltd are good for the money. No explanation is given. Seventh, it must have been clear to those advising the appellant and to the appellant that the order of 11th July was a last chance. Waller LJ in his first judgment made it clear that it was nearly the last chance at that stage, and it must have been clear to everybody that to disobey another unless order was likely to lead to a refusal to grant relief from sanction. Despite that, the payment was left so as to be too late. It was faulty and nothing has been done since then to provide for immediate transfer of funds.

In my view the interests of justice are not served by allowing Contract Facilities, a company with no funds, to continue with this appeal when they have failed to comply with two unless orders and sought to manipulate the court's process to avoid payment. I am not prepared, in the absence of a statement from Mr Shuck or his attendance in court, to find that the failure to comply was unintentional. If he had intended to comply I would have expected him to have sent the cheque on the 12th not the 17th to his solicitors. In any case the explanation given, as I have pointed out, was not satisfactory. He had been warned by Waller LJ that the explanation given by his solicitor might not be accepted.

Mr Cogley did not suggest that the appellant's history of compliance with court orders was satisfactory, and it is clear that the court could not be sure that its orders would be complied with without an adjournment.

I have no doubt that this is a case where the court should not exercise its discretion to grant relief from sanction. Therefore I would refuse this application.

LORD JUSTICE BUXTON: I agree. Mr Cogley took us through the various heads set out in CPR 3.9(1) and reminded us that we should take into account all of those before reaching a conclusion on this application. That is indeed the case, but the signal feature of this application is that the requirement under CPR 3.9(1)(e) overrides any other consideration that might apply. CPR 3.9(1)(e) requires the court to have regard to:

My Lord has set out the lamentable history. The history is relevant in two ways. First, as demonstrating the attitude of Contract Facilities Ltd -- or more particularly its moving force, Mr Shuck -- to orders of the court; and secondly, in throwing light upon what was claimed to be a merely administrative error that caused the failure to comply with the order of this court made on Friday 11th July.

So far as the attitude to orders of the court and to the court process is concerned, I would cite but three points. First of all, there is the failure to comply with the order of 24th March 2003. The explanation for that failure, that was apparently given to Waller LJ by counsel on instructions, was that Mr Shuck had failed to appreciate that that order was an unless order. I find that explanation extraordinary. The only implication that can be drawn from it is that if the order was thought by Mr Shuck not to be an unless order, he considered himself at liberty not to obey it because the ultimate sanction was not attached to it.

Secondly, the application that was made to Judge Weeks to vary his original costs order. It should have been obvious that Judge Weeks could not vary that order because he was functus, and as we have been told from the Bar, he indicated that on a previous occasion. That application, to put it at its lowest, needed to be looked at with a great deal more critical scrutiny than it received, to ensure that it was not being made with the purpose, or alternatively would have the effect, of simply further extending a very long period of delay.

Thirdly, the observations already quoted by my Lord made by Waller LJ on 13th May 2003, in paragraph 13 of his judgment, when he made it absolutely clear that no further indulgence whatsoever would be granted.

In the light of all those warnings and those events, it was extraordinary that the orders made for interim payment and the payment of costs by Master Wright on 6th June were not complied with. The respondents were obliged to revert to this court in order to achieve compliance with those orders. It was all part of a pattern. The orders that were made on 11th July must have been apparent to Mr Shuck and to his advisers to be the very last chance that he could possibly have to comply with his obligations to this court. Mr Shuck chose to interpret the order for payment in his own favour by assuming that delivery of an uncleared cheque by the last due date would be sufficient. I make no further comment on whether he was right to think that: I am still not persuaded that he was. But right or wrong, if he had had any serious interest in acting upon the many warnings already given he would, as my Lord has said, not have left the matter until the 11th hour, but would have immediately set about ensuring that there could be no administrative, practical, financial or other reason why the orders were not fully complied with. I cannot but think that he must have been so advised by his advisers.

Instead of that, it was not until 17th July, six days after the order had been made and less than 24 hours before it expired, that Mr Shuck produced the two cheques. Like my Lord I am, to put it its lowest, deeply sceptical of the explanation that he proffered that the cheques had only one signatory because of haste and oversight. If, as we are invited to assume, Worcester Property Company Ltd is a functioning company with substantial assets and Mr Shuck is responsible for running it, he could hardly have been unfamiliar with the signatory requirements on the company's cheques. It is simply extraordinary that in those circumstances he would have provided a cheque that, if he had thought for a moment, he would have known would not be acceptable. Of course those who received the cheque would not have known that because they would have known from the face of the cheque that it required two signatories.

Assuming in Mr Shuck's favour -- and I do not necessarily say that I make that assumption -- but assuming in his favour that this was indeed all caused by oversight and rush, that assumption in itself demonstrates that he did not give to this matter and to his requirements under the order the clear attention that he should have done in the light of the history and in the light of the order made by this court on 11th July.

In those circumstances, there is no ground at all for this court to grant further indulgence. For the reasons that I have indicated, in addition to those given by my Lord with which I agree, I would not grant the relief sought.

LORD JUSTICE MAY: I agree with my Lord, Lord Justice Aldous, for the reasons which he has given that the appellant should not be relieved from the consequences of their failure to comply with the unless order made by this court on 11th July 2003. I gratefully adopt his account of the facts and circumstances.

This is the fourth occasion in as many months on which this court has had to address the conduct on behalf of the appellants of matters relevant to their appeal. Waller LJ took the view, on 13th May 2003, that the evidence of Mr Shuck then before the court to the effect that any appeal would be stifled by orders requiring payment was exceedingly weak.

Rule 3.9 of the CPR obliges the court to consider all the circumstances, including such of the factors set out in the nine sub-paragraphs of Rule 3.9(1) as are capable of bearing on the decision in the particular case.

The witness statement of Mr Tasselli contains what he is told are the reasons why the two cheques drawn on the account of a hitherto unknown company for £37,000 and £11,791.81 have not been cleared. In my view the respondents are entitled to be sceptical as to those explanations. As my Lord has said, Mr Shuck has not himself come to court today being engaged, we are told, on a planning appeal in Liverpool. He has not himself provided a witness statement. Mr Tasselli also on instructions offers Mr Shuck's personal undertaking to see that the cheques will clear on representation. The fact however is that the terms of the unless orders were not complied with, nor had they been complied with at the time this morning when the appeal was listed for hearing.

Mr Cogley has made a valiant attempt, by reference to those factors in Rule 3.9(1) capable, on his submission, of supporting the application for relief to submit that relief should be granted. In my judgment, the considerations which indicate overwhelmingly that the court should not grant relief are to be found embedded in the judgment of the court follow the hearing on 11th July to be given by Waller LJ tomorrow. My Lord has referred to these in some length, but it seems to me that those in paragraphs 7, 8, 9 and 10 of that judgment contain the essence of the background.

In short, Waller LJ will say:

In my judgment this is the last straw and relief from sanction should not be granted.