Thevarajah v Riordan & Ors

This case has an unusual procedural history. It was listed for a speedy trial with a trial window opening on 1^st October this year and closing on 31^st October. After close of business on Tuesday 1^st October the First, Second and Fourth Defendants (‘the Defendants’) – the third defendant company not being represented, playing no part in the proceedings and only being joined so as to be bound by the result – served notice of change of solicitors and the following day those new solicitors served an application on the Defendants’ behalf asking for the following relief. First and foremost, relief from the sanction in the order of Mr Justice Henderson dated 21^st June imposed by the order of Mr Justice Hildyard dated 9^th August and consequential orders providing for the Defence and Counterclaim to be restored and further Directions to trial, which will inevitably have to be adjourned if the court accedes to this application. Second, that the freezing injunction dated 17^th May 2013 be varied so that the value of assets to be the subject of the injunction are reduced from £4.1 m to £2.5 m and that the Defendants are permitted to spend a reasonable sum on legal advice and representation.

This application was listed to be heard on the first day of trial, namely, Monday 7^th October. I have had the benefit of helpful submissions over two days from James Bailey on behalf of the Claimant and Simon Davenport QC leading Daniel Lewis on behalf of the Defendants. Before dealing with the issues that arise on the application it is necessary to describe briefly what the case is about and then to set out in some detail the procedural background to the application.

The Claimant is a businessman said to have particular expertise in the travel industry. He also invests in property. The Defendants are property developers who appear to specialise in the development of public houses. The Fourth Defendant was declared bankrupt in May 2001. In February 2002 his discharge from bankruptcy was suspended indefinitely and he remains an undischarged bankrupt. In August 2008 he was disqualified from acting as a director for 10 years. The Claimant alleges that the Fourth Defendant was a shadow director of the Third Defendant at all material times up to 28^th March 2013, which is when the Claimant became sole director of the Third Defendant.

The Claimant’s case relies on three oral agreements said to be evidenced in writing or by part performance. He says he agreed to purchase a property known as The Jewel, together with a 50% interest in another property called The Devonshire Castle, both being public houses, from the Defendants for a consideration of £2m and a pizzeria valued at £250,000, making a purchase price of £2.25m in money or money’s worth. He says the properties were to be free of encumbrance or the purchase price otherwise adjusted. The Jewel was not to be purchased directly but rather the Claimant was to purchase the entire issued share capital of the company that owned it, namely, the Third Defendant. The interest in the Devonshire was similarly to be acquired through a corporate vehicle but not the Third Defendant. The total purchase price was to be split £1.5 m as to The Jewel and £750,000 for the 50% interest in The Devonshire. As Mr Bailey pointed out on behalf of the Claimant, this agreement created what he described as something of a Gordian knot within the litigation. The Third Defendant owns not only The Jewel but also a public house called The Holloway Castle, referred to by the parties as The Castle, which has never been the subject of the sale agreement. The Castle was to be transferred out of the Third Defendant to the other Defendants at completion. However, the Bank of Cyprus has lent substantial sums to the Third Defendant and these sums are secured on both The Jewel and The Castle. The Bank has not to date been prepared to separate the properties, the lending and the securities.

The Claimant says that he took steps in part performance of whatever agreement was entered into in the period from October 2011 until around the middle of 2012. During that time the Claimant paid over £1.572m in cash and in tranches to the Defendants as part payment. He says he entered into what is called “the first collateral contract” in December 2011. By this agreement the First and Second Defendants provided him with 50% of the shares in the Third Defendant and agreed that he would be a director of that company. The Claimant says that in February 2012 the agreement was varied such that he would also acquire 50% of the issued share capital in a corporate vehicle that would own a further public house called The Jester. The additional purchase price was to be £500,000. The Defendants permitted the Claimant to take possession of The Jewel and the Claimant says he has spent about £600,000 renovating it. He says that he presently trades an established and profitable pub and restaurant business from The Jewel.

By the beginning of May 2012, on the Claimant’s case, the agreement as varied had still only been partially completed. On 25^th July 2012 he says that he entered into what is called “the second collateral contract”. This provided a scheme by which (i) the balance of the purchase monies could be paid over to the Defendants in respect of The Jewel and (ii) the Claimant would become sole shareholder and director of the Third Defendant. It is the Claimant’s case that by 10^th August 2012 the Defendants had put themselves in breach of the second collateral contract by having the First and Second Defendants appear as directors of the Third Defendant at Companies House. Matters came to a head in February 2013 when the Claimant discovered that he did not appear to be the sole director of the Third Defendant and the Defendants claimed that the agreed purchase price for The Jewel alone was in fact £2.5 m and refused to complete the sale on the terms alleged by the Claimant.

The Defendants deny the contractual arrangements set out in the Particulars of Claim contending instead that the only agreement between the Claimant and the Defendants was for the indirect purchase of The Jewel. They say that the Claimant would purchase the entire share capital of the Third Defendant, which would have The Jewel as its sole asset, for £2.5 m, comprising cash of £1.7 m and the assumption of agreed borrowings of £830,000, and that on entering into the agreement the Claimant would be appointed a director of the Third Defendant and receive a 50% shareholding and on completion the Claimant would become sole director and sole shareholder of the Third Defendant. The Defendants further allege that the Claimant is in breach of this agreement having failed to pay the sum of £1.7 m in cash (having only paid £1.572 m) and having failed to accept the Bank’s mortgage offer to assume responsibility for the Third Defendant’s borrowing in the agreed sum of £830,000 (thereby having failed to service the Third Defendant’s borrowings) and also having purported to be the sole director of the Third Defendant.

It is apparent from this summary of each side’s case that whilst certain facts are not disputed (such as the Claimant’s payment to the Defendants of £1.572 m), there is a substantial dispute as to what was agreed. The court’s task at trial will be to work out whether any agreement was in fact reached and if so what the terms of that agreement were, and if no agreement was reached, what the consequences of such a finding should be. It is a dispute which, had it proceeded in the ordinary way, would clearly depend very substantially upon the court’s conclusions as to the parties’ witness evidence. However, this case has not proceeded in the ordinary way and I need to summarise the procedural background to the application now made by the Defendants.

On 22^nd March 2013 the Claimant issued a Part 8 claim together with an application notice by which he sought declarations that he was the proper director of the Third Defendant and injunctive relief to prevent the Defendants holding themselves out as directors. His application was heard by Mrs Justice Proudman on short notice to the Defendants and adjourned until 28^th March with interim injunctive relief ordered in the meantime. On 28^th March the matter came before Mr Justice Sales and ultimately the Defendants consented to an order that the Claimant should be sole director of the Third Defendant until trial or further order.

In April 2013 the Claimant became aware of commitments made by the Defendants to a company called Southern Territory Ltd. This company through its directors a Mr Alexandrou and Mr Leonidas had, prior to the Claimant’s involvement with the Third Defendant, had dealings with the Defendants and agreed to provide a £1.1 m guarantee to secure funding from the Bank of Cyprus to enable the Third Defendant to purchase The Jewel and The Castle. Until the security was released, this company was to become temporary owner of the same shares in the Third Defendant that were later in part transferred to the Claimant. Messrs Alexandrou and Leonidas were also to be made the directors of the Third Defendant and were not aware that this position had changed until proceedings were commenced by the Claimant.

It was this development together with the awareness of the Fourth Defendant’s undischarged bankruptcy and his disqualification from acting as a director that led to the Claimant making an application without notice for a worldwide freezing order to Mr Justice Arnold on 9^th May together with an order for the provision of information by the Defendants as to their assets and liabilities. The Claimant showed Mr Justice Arnold a recent Court of Appeal decision in the case of London and Quadrant Housing Trust v Prestige Properties Ltd [2013] EWCA Civ 130 where Lord Justice Kitchin said of the Second and Fourth Defendants that they deliberately sought to obscure the truth about Prestige Properties Ltd’s financial position, gave brazen and dishonest evidence and failed to disclose anything about the value of the property interests which any of them held. In that London and Quadrant case, which did not involve the First Defendant, Judge Cryan, sitting in the Clerkenwell and Shoreditch County Court, had made a freezing injunction following judgment and in support of an order for costs. He found the allegations and assertions made by the Second and Fourth Defendants in their evidence to be ‘quite brazen in their dishonesty’ and that they told ‘preposterous lies’ which formed the basis of the Defendant company’s defence to the claim, and he made an indemnity costs order against them personally. The Defendants complained to the Court of Appeal that the freezing order contained no maximum sum and said that the judge had erred in failing to impose a financial limit in his order. The Court of Appeal rejected this complaint on a number of grounds including the fact that the Defendants had raised no objection when the order was made and that the injunction was only directed to the freehold or leasehold property in which the Defendants had an interest.

On the without notice application on behalf of the Claimant, Mr Bailey, relying on the London and Quadrant decision, sought to persuade Mr Justice Arnold to grant a freezing injunction without a financial limit. Mr Justice Arnold refused to do this, and limited the frozen sum to £2.5 m. However, he was persuaded to make an order at para. 9 of the injunction against the Defendants and four companies in which they had an interest requiring them by 4 pm on 13^th May 2013 to inform the Claimant’s solicitors of all their assets and liabilities worldwide exceeding £5,000 giving the value, location and details of all such assets.

The return date of the application for the freezing order was before Mr Justice Arnold on 17^th May 2013. Both sides were represented by counsel. The Claimant contended that the Defendants had failed to comply with their disclosure obligations under the order of 9^th May and sought a more specific formulation of the order which is to be found at para. 8 of the order made on 17^th May. It is not clear what discussion took place about this new formulation but I gained the impression that the Defendants effectively consented to it. Sub-paragraph 8(2) of that order provides for nine items of detailed information to be provided by the Defendants. It is this part of the order which has resulted in substantial subsequent satellite litigation and has ultimately resulted in the application I now have to determine.

Also at this hearing on 17^th May Southern Territory Ltd was given permission to join the litigation as Second Claimant and the sum sought to be frozen was increased from £2.5 m to £4.1 m. Two orders were made, the first concerning the injunctive relief and the Defendants’ disclosure obligations, and the second providing directions for a speedy trial.

The Claimants issued a Part 7 claim form joining in the Second Claimant and served Particulars of Claim on 24^th May. They complained that the Defendants had not complied with their disclosure obligations under para. 8 of the order of 17^th May and on 10^th June they made a debarring application seeking to enforce those obligations by way of an unless order. That application came before Mr Justice Henderson four days later on 14^th June. The evening before the hearing the Defendants served further evidence and the hearing was adjourned for seven days to allow the Claimants an opportunity to consider the Defendants’ claim that they had now complied. The Defendants were ordered to pay the costs occasioned by the adjournment.

The matter came back before Mr Justice Henderson a week later on 21^st June. I am informed by Mr Bailey that this hearing was heavily contested by counsel then appearing on behalf of the Defendants, Mr Justin Davies, and I have been provided with an unapproved note of Mr Justice Henderson’s judgment prepared by the Claimant’s solicitor. It is regrettable given the circumstances of the present application that I have not been provided with an approved transcript of this judgment. I have no option but to recite parts of this unapproved note as follows, starting at para. 3 of the note and continuing to para. 16:

The order of Mr Justice Henderson records an undertaking by the Defendants in the following terms:

The Defendants were ordered to provide this information by 4 pm on 1^st July. It is worth noting that para. 3 of Mr Justice Henderson’s order of 21^st June contained an unless order requiring the Defendants’ Defence to be served by 4 pm on 28^th June. That order was complied with. The Directions regarding filing of a Reply, disclosure and witness statements made by Mr Justice Arnold on 17^th May were all extended by seven days with the result that the date for standard disclosure under CPR Part 31 was extended to 12^th July.

The Claimant complained that the Defendants had failed to comply with their disclosure obligations as set out in para.1 of Mr Justice Henderson’s order. By an application notice dated 10^th July 2013 they applied to debar the Defendants from defending the claim. The Defendants countered with a relief from sanction application issued on 12^th July. These applications came before Mr Justice David Richards on 16^th July and were adjourned by consent to a consolidated hearing which was listed in a window of 7-9^th August, in other words, during the vacation. The matter came before the vacation judge, Mr Justice Hildyard, on 9^th August. I have been provided with a transcript of the hearing and an unapproved note of Mr Justice Hildyard’s judgment prepared by the Claimant’s solicitor. Again it is regrettable given the circumstances of the present application that I have not been provided with an approved transcript of this judgment. I have also been handed a note of the judgment prepared by Westlaw, which I regard as in some respects more reliable than the note prepared by the Claimant’s solicitors (although I do not criticise that note; it is obviously the best that solicitor could do in the circumstances) and I therefore read from part of the Westlaw note as follows. This is taken from the second page of the note, beginning at the fourth line from the top:

As a consequence of this judgment Mr Justice Hildyard declared that the Defendants had failed to comply with the unless order of Mr Justice Henderson and were debarred from defending the Claimant’s claim and ordered that the Defence and Counterclaim be struck out, and the determination of the heads of relief claimed by the Claimant in the particular claim be adjourned for a disposal hearing to take place in the current trial window. The Defendants were ordered to pay the Claimant’s costs on an indemnity basis in the sum of £24,461. On the same date, 9^th August, Mr Justice Hildyard made a further order staying the proceedings between the Second Claimant and the Defendants on agreed terms, which terms were attached to the order in Tomlin form. It is therefore clear that the Second Claimant plays no further part in these proceedings.

No appeal was made against Mr Justice Hildyard’s order striking out the Defendants’ Defence and Counterclaim. Instead on 19^th August the Defendants consulted new solicitors and steps were taken to prepare a lengthy further affidavit of the First Defendant comprising some 37 pages and a substantial exhibit. This affidavit was filed in support of the present application on 1^st October.

In summary, the Defendants submit as follows. First, that they have now complied with the disclosure requirements of the order of Mr Justice Henderson dated 21^st June. The breach of the unless order was remediable and has now been remedied. Second, that compliance has been delayed is in part due to the wide-ranging nature of the disclosure sought and the limitations on the availability of funding for legal costs. They submit that their efforts to comply should be judged in the context of disclosure orders which require expenditure of significant time and cost, which depended on the cooperation of third parties and in circumstances where the Defendants’ inability to comply was constrained by the terms of the freezing injunction. Third, they submit that they have not acted with intent to frustrate the operation of the freezing injunction; on the contrary, they consented to the disclosure sought by the Claimant at the hearing on 17^th May and then took steps to comply although it is accepted that there has not been complete compliance until provision of the affidavit dated 1^st October. They say that the history of the case demonstrates a considerable effort to comply although they accept that these efforts were judged to have fallen short. Fourth, while accepting that the Defendants, as the parties, are principally responsible for compliance with court orders their submission is that the historic failings in disclosure were at least in part due to their former solicitors. Finally, they submit that the effect of the refusal of relief is to leave the court to try the claim in circumstances where (1) there is a substantial dispute of fact not capable of fair resolution by reference to the documents alone; (2) the Claimant has not provided disclosure or witness statements in compliance with the Directions order of 17^th May; and (3) the Defendants may still participate in any trial subject to the court’s inherent jurisdiction to determine how proceedings are managed but their involvement would be limited as to the issues which it is open to them to pursue. That, they submit, would not be a just result; it would leave the court with witness and documentary evidence which is incomplete and one party limited in its ability to assist the court in evaluating that evidence. It would be, they submit, a disproportionate and unjustified windfall to the Claimant were relief from sanction to be refused. They submit these are substantial claims involving allegations of dishonesty which turn on witness evidence. This is not a case where the court is well placed to make an adequate assessment of the merits based upon the documentation alone.

The Defendants also submit that there is no prejudice to the Claimant which has not already been visited on the Defendants in costs. The breach of the unless order does not have any detrimental effect to the underlying proceedings which remain capable of a fair resolution and in that context they draw the court’s attention to the fact that the disclosure obligations required of them were ancillary to the freezing order and not directly relevant to the main issues in the proceedings. They submit that they have not acted in breach of the freezing injunction itself save for the failures in respect of disclosure which have now been remedied. They accept that if relief from sanction were to be granted the Defendants must apply for the adjournment of the trial. They submit however that they will be in a position to fund representation to bring themselves into compliance with the court’s Directions so that a trial could take place within the current trial window which closes on 31^st October. They submit that the application has been made promptly, less than two months after the hearing of 9^th August, at which the Defendants were found to be in breach of the unless order, and following a change of representation and further substantial efforts to comply with that order.

The Claimant’s case in response to the application broadly falls into two parts. His primary argument is that the second relief application issued on 1^st October is an abuse of process because it seeks to litigate something that has already been determined before a court of commensurate jurisdiction. His second argument is that the unless order and striking out of the Defence and Counterclaim were wholly warranted and that in any event the Defendants still have not complied with the unless order.

As to the Claimant’s primary argument, he submits that it is a fundamental principle of the civil justice system that a litigant having brought an issue before a judge for determination should not be entitled to have a second bite at the cherry by bringing a similar application before another judge of the same jurisdiction if he does not like the decision at the first time of asking. To do so is an abuse of process. Although the application is brought under CPR 3.9 the Claimant submits that this is tantamount to revisiting the decision of Mr Justice Hildyard to refuse relief from sanction under the same Rule 3.9 and that, although CPR 3.1(7) gives the court power to vary or revoke a previous order, the authorities show that if an applicant wishes to come back on a second occasion having fully argued the matter on the first occasion, it is imperative for him to show that something is different and that that information could not have been put before the court on the first occasion. If a litigant does not like the result, he has the option of bringing an appeal and cannot use CPR 3.1(7) to circumvent the appeal process. The Defendants have not attempted to appeal any of the three orders that the Claimant submits they seek to circumvent and are now substantially out of time for doing so. To succeed on an appeal it has to be shown that the judge exercising the discretion either erred in principle, left out a material consideration, took into account an irrelevant consideration or was plainly wrong in his overall conclusion. None of those points arises here.

Alternatively, if the application is not held to be an abuse of process the Claimant submits that it should nevertheless be dismissed because the Defendants have still not complied with the unless order and even if they have finally complied they have delayed too long in doing so. Having failed to comply on five occasions up until 9^th August with a trial window opening some nine weeks later, the Claimant complains that the Defendants did not attempt compliance after they were struck out until after the trial window had opened so their position has got worse not better. Any application to revisit a previous decision must be made promptly and this application was not made promptly. Promptness has to be viewed in context. In this case it involves nearly two months of inactivity leading up to the speedy trial. Finally, the Claimant points out that the Defendants have not paid the costs orders made by Mr Justice Henderson and Mr Justice Hildyard.

As indicated, the Defendants bring this application under CPR 3.9. This Rule was amended with effect from 1^st April 2013 and simplified following the recommendations of the Jackson report and consideration by the Rule Committee. It now provides as follows:

The following principles can be derived from two recent decisions of the Commercial Court on the application of the amended CPR 3.9, namely Rayyan al Iraq Co Ltd v Transvictory Marine Inc, an unreported decision of 23^rd August 2013, and Wyche v Care Force Group plc, an unreported decision of 25^th July 2013. The principles that can be gleaned from those cases are as follows. First, the matters contained in the old checklist in CPR 3.9 remain of relevance to an application for relief from sanction. Second, the change in CPR 3.9 did not mean that relief should be refused where that would be a disproportionate response and would give the opposing party an unjustified windfall. Third, that the court should not apply the new rules unthinkingly and should make allowance for human error. Fourth, that the amended Rule should not be permitted to encourage parties to exploit minor errors for tactical gain. These decisions show in my judgment that the court in each case while accepting that the purpose of the amended Rule is to counter a culture of deliberate delay still had principal regard to the requirement to do justice between the parties.

The Defendants do not seek here to challenge the orders that have gone before. However, they submit – and I accept – that it is appropriate in the circumstances of this case in considering the application for relief and the extent of the previous compliance with those orders for the court to have regard to the following matters. First the burden imposed on the Defendants in complying with these orders and particularly the fact that the disclosure required of the Defendants went beyond that ordinarily required as ancillary to a freezing injunction. Second, the fact that the orders required cooperation from third parties not within the Defendants’ control. Third, the fact that the Defendants relied on their solicitors to advise them in relation to whether or not they had complied with the court’s orders.

In its standard form para. 9 of a freezing order requires the Respondent to use his ‘best endeavours’ to provide disclosure of his assets. The order made by Mr Justice Arnold on 9^th May included the additional requirement that the Defendants disclose liabilities as well as assets. The inclusion of this requirement was explained in the Claimant’s skeleton argument in para. 9 as follows: ‘The nature of the information sought about the Respondent’s assets is expanded to include liabilities to facilitate the inclusion of a maximum sum on the return date.’ Notwithstanding the fact that no maximum sum order was made, the requirement to provide disclosure of liabilities was not deleted and has subsequently formed a substantial part of the complaint as to disclosure levelled against the Defendants. The second order for disclosure made on the return date of 17^th May went further in that it required the Defendants to provide specific categories of information including, for example, valuation of planning evidence in respect of real property and details of bank accounts and bank statements “whether the Respondent is interested in them legally beneficially or otherwise.”

The Claimant then applied for and was granted an unless order dated 21^st June by Mr Justice Henderson requiring the disclosure of three categories of information; in summary, first, details of any charges on any real property and account statements in respect of any borrowings secured against such real property; second, details of the Defendants’ bank account and any accounts in which they have an interest and bank statements from 1^st October 2010; thirdly, particulars as to how the Defendants are funding the litigation. The requirements to provide information in respect of the charges and bank accounts extended to four named companies. In addition the Second Defendant was to send letters to banks in the form of a draft produced to the court and it appears drafted by the Claimant’s lawyers. In default of compliance the Defendants were to be debarred from defending the claim and any Defence filed by them was to be struck out. The Claimant’s application to strike out the Defendants’ Defence relied upon a lengthy ‘Schedule of Deficiencies’ in support of the allegations of non-compliance itemising 39 alleged deficiencies. The presentation of the Claimant’s allegations of non-compliance was described by Mr Justice Hildyard as having painted an overly-bleak picture and having used inflammatory headings – at least that is how it is recorded in the Westlaw note. The number of deficiencies appears to have come down to two or three omissions which formed the basis for Mr Justice Hildyard’s declaration that the Defendants had failed to comply with the unless order.

Mr Bailey submits that, notwithstanding the lengthy affidavit and exhibit of the First Defendant relied on in support of the present application, the Defendants have still not complied with the unless order in one respect. He has referred me to some bank statements exhibited by the Fourth Defendant which evidence some five receipts of money from Prestige Properties Ltd, one of the four companies in respect of which disclosure of bank statements was required, and complains that no statements have been disclosed evidencing these payments. In para. 61.25 of his affidavit the First Defendant says this in response to the Claimant’s complaint:

Numerous Bank of Cyprus bank statements have been disclosed for Prestige Properties Ltd and are to be found at bundle 4, tabs 26-29. I have also seen a witness statement from Mr Cook which supports the First Defendant’s evidence and refers to a bank statement which he purported to exhibit which is not now in the bundle and which Mr Bailey told me was handed to Mr Justice Hildyard in the course of the hearing on 9^th August but is now mislaid.

In the circumstances I conclude that the omission of this evidence does not amount to a breach of the unless order and even if it did, in the context of the disclosure provided as a whole, it is de minimis and would not justify a finding that the Defendants had failed to comply. In assessing a Respondent’s compliance with a requirement under a freezing order to provide information as to assets and liabilities ‘to the best of his ability’ the court will consider all the circumstances of the case. I was referred by Mr Davenport to the case of Oystertech plc v Davidson [2004] EWHC 627 where Mr Justice Patten said this:

The Defendants accept that principal responsibility for compliance with court orders rested with them and not with their legal representatives. However, they submitted that they had not been well-served by their former solicitors. In particular they say that in order to comply with the asset disclosure order and the Directions to trial, both orders made on 17^th May, it should have been immediately apparent that the Defendants would require expenditure on legal representation in a sum exceeding the £20,000 limit imposed by the freezing injunctions of those dates. No steps were taken on the Defendants’ behalf to obtain an increase of this limit. Second, and in my judgment more pertinently, they rely upon the fact that in advance of the hearing on 9^th August they were advised by their solicitors that they had complied with the unless order of Mr Justice Henderson. They have waived privilege in an email exchange between the First Defendant and the partner in PG Legal, their solicitors, Mr Jonathan Fletcher. In the circumstances they say that the failure to obtain further documentation by the time of that hearing was understandable.

I refer to p. 95 of the exhibit to the First Defendant’s affidavit which is clearly a privileged document but in respect of which privilege has been waived. This document evidences an email exchange on 6^th August – so three days before the hearing before Mr Justice Hildyard – in which the First Defendant says to his solicitor Mr Jonathan Fletcher:

Whether a failure to comply with a court order was caused by the party or his legal representative was a relevant circumstance when considering an application for relief from sanction under the pre-amendment CPR 3.9(1)(f). The courts have continued to have regard to the factors under the pre-amendment rule after 1^st April 2013, as Mr Justice Hildyard himself accepted at the application hearing on 9^th August. In Perreira v Beenlands [1996] 3 All.E.R 528 Mr Justice Robert Walker held that the court’s discretion to decide the consequence of non-compliance with an unless order was not fettered by any binding principle that the default, whether an act or omission, of a litigant’s solicitor should always be visited on the litigant himself. This statement of principle was accepted by the Court of Appeal in Hi Tech Information Systems Ltd v Coventry City Council [1997] 1 WLR 1666 at 1675 as ‘a perfect example of the exigencies of justice coming to do justice in a particular case.’ I accept that in circumstances in which wide-ranging disclosure obligations were imposed by the court’s orders, affecting both assets and liabilities, the Defendants were justified in relying on their solicitors to ensure that they had complied with those orders.

I regard the email exchange three days before the hearing on 9^th August as significant because it shows that the Defendants’ solicitor Mr Fletcher was advising the First Defendant that the unless order had been complied with. The Defendants were entitled to rely on that advice, which is why the outcome of the hearing on 9^th August must have come as a considerable shock to them. I have to say I have some sympathy for Mr Fletcher’s view given that the complaints of non-compliance by the Claimant had been so wide-ranging and frankly oppressive in their nature. Mr Bailey even told me in the course of his submissions that he had identified 119 instances of non-compliance which had been whittled down to 39 in the Claimant’s ‘Schedule of Deficiencies’ which Mr Justice Hildyard is reported by Westlaw as having described as painting an overly-bleak picture of the Defendants’ conduct.

The Defendants also rely on the fact that, as Mr Bailey conceded before me, the Claimant has failed to comply with the Directions ordered by Mr Justice Arnold on 17^th May as varied by Mr Justice Henderson on 21^st June. The Claimant has failed to provide disclosure and inspection in accordance with CPR Part 31 by 12^th July or at all, or to serve witness evidence in support of the claim, and it appears from his skeleton argument that the Claimant is instead relying upon the evidence filed in support of the previous interim hearings and upon a signed version of the Particulars of Claim. Those omissions are not answered by the fact that the Defendants are currently debarred from defending the claim. First, the Claimant is still required to prove his case at the disposal hearing, Mr Justice Hildyard having rejected his request for judgment at the hearing on 9^th August. Second, the obligation to provide disclosure remained in place even after the debarring order. That obligation is not contingent upon there being an existing Defence since under CPR 31.6 the Claimant is required to disclose documents which ‘adversely affect his own case’ and may therefore be relevant when deciding what (if any) remedy the Claimant is entitled to.

I consider that, notwithstanding the fact that they are currently debarred from defending the claim and subject to the court’s inherent jurisdiction to regulate its own process, the Defendants are entitled at trial to require the Claimant to prove his claim, to cross-examine and to make submissions.

In Culla Park Ltd v Richards, unreported, [2007] EWHC 1687, the court held that striking out the defence to a claim for malicious falsehood did not prevent the Defendants from participating at trial or from testing the allegation of malice which the Claimant was required to prove against them. Mr Justice Eady said this at paras. 11 and 12:

A similar conclusion was reached in the case of JSC BTA Bank v Ablyasov (No 8) [2013] 1 WLR 1331 where Lord Justice Toulson in a dissenting judgment – the only judgment to consider the effect of the debarring order on the conduct of the trial – stated at p. 1397:

Mr Bailey relied on the case of Momson v Azeez as authority for the submission that once debarred from defending a claim the Defendant had a right to be present in court but no right to test the Claimant’s case. I reject that submission. As Mr Davenport submitted, there was no analysis in those judgments of the effects of a debarring order. It is necessary to refer to the passages in the judgments relied on by Mr Bailey to see precisely what this authority establishes. At first instance ([2008] EWHC 623), Mr Justice Briggs said at para 26:

Then on the application for permission to appeal ([2008] EWCA Civ 829), which came before Lady Justice Arden and Lord Justice Wall, Lady Justice Arden referred at para. 5 to the fact that: ‘The judge, therefore, made a barring order at the start of the trial and the effect was that the appellant was present during the trial but took no part’, and at para. 9 she continued:

Permission to appeal was given, and on the appeal itself ([2009] EWCA Civ 202) Lord Justice Rimer in his judgment stated in para. 3 as follows:

At para. 27 Lord Justice Rimer referred to the fact that on 29^th January Mr Azeez attended the court in person; the court was told of the bankruptcy and that the bankruptcy debts had been paid. Mr Azeez did not ask for an adjournment for legal representation. Then at para. 28 Lord Justice Rimer continues:

I do not regard any of the observations by their Lordships at various stages in that case as giving me any particular guidance as to the course a judge should take in circumstances where a Defendant has been debarred from defending a claim but the Claimant is nevertheless still required to prove his claim. I consider that what needs to be considered is the overriding objective and the need to achieve a fair result. The fact that Mr Justice Hildyard was not prepared to give the Claimant judgment in default and required him to prove his case at a further hearing before a judge strongly suggests that he envisaged the Claimant’s case being tested not just by the judge on that further occasion but by the Defendants who would be entitled to assist the judge within suitable parameters designed to reflect the fact that they had been debarred from defending the claim. So, for example, whilst not entitled to challenge the issue of liability, the Defendants would be entitled to make submissions to the court on the appropriate form of relief as well as challenging the Claimant’s liquidated claim.

However, the part the Defendants would play in any one-sided trial if the current application were to be dismissed does not arise given that I have reached the very clear conclusion that in all the circumstances the interests of justice in this case dictate that the Defendants should be granted relief from sanction.

My conclusion is strengthened by the further consideration that the Claimant needs to give disclosure of documents. This is necessary to ensure a fair process and for the court to be satisfied that any remedy granted to the Claimant is appropriate, particularly where the merits depend heavily upon witness evidence. The fact that the Claimant has not given disclosure in compliance with CPR 31 means that this case is not in any event ready for trial. This is a matter I take into account in the exercise of my discretion. I also note that the Claimant has made no attempt to seek relief from sanction under CPR 3.9 in respect of his failure to comply with the directions order of Mr Justice Arnold dated 17^th April 2013, as amended by the order of Mr Justice Henderson dated 21^st June 2013.

In reaching my conclusion that the Defendants should be permitted relief from sanction I have considered and rejected the Claimant’s submission that the current application is an abuse of process and should be dismissed for that reason alone. There is clear Court of Appeal authority that a second application for relief is permissible. In Woodhouse v Consignia plc [2002] 1 WLR 2558 the Court of Appeal held that the court had power to grant relief from sanction on a second application for relief where an earlier application had been dismissed. The Court of Appeal comprising Brooke, Laws and Dyson LJJ, held that it was possible to make a second application for relief. At para. 33 Lord Justice Brooke said as follows:

I interpose simply to note that of course the new Rule 3.9 does not require the judge to go through the items listed in the old Rule 3.9, merely, as has been held, to have regard nevertheless to those factors. At paras. 55-58 Lord Justice Brooke said this:

In refusing the Defendants relief on the first application for relief from sanction on 9^th August, Mr Justice Hildyard referred to Tarn Insurance Services Ltd v Kirby [2009] TP Rep 22 which it appears was not cited by counsel for either side and in respect of which he did not have the benefit of any detailed submission. In that case it was held that it was to be assumed the judge imposing an unless order accepted that if the sanction was imposed the defaulting party would be deprived of a defence with a real prospect of success. The existence of such a defence was not itself grounds for granting relief. What was required was either some material change in circumstances between the date of the making of the unless order and the hearing of the application for relief or some good reason to excuse continued non-compliance. It is necessary to recite certain passages from the judgment of Sir John Chadwick, beginning at para. 78:

Then at para. 79:

Then continuing at para. 81:

Tarn Insurance Services was a case where the Applicant seeking relief remained in breach of the unless order at the time of the application for relief and was unable to show good reason for his continued non-compliance. In contrast, as I find, the Defendants have now complied with their disclosure obligations and I also find that this compliance itself amounts to a material change of circumstances between the time that the matter came before Mr Justice Henderson and Mr Justice Hildyard and the time of this further application for relief. On the basis of the Woodhouse decision, I find that in the circumstances of this case, where the disclosure obligations placed upon the Defendants were significant and wide-ranging and there is no evidence that the Defendants have wilfully failed to comply with the court’s orders (on the contrary, on each occasion the evidence is that they have attempted to comply and acted on their solicitor’s advice), the Defendants are entitled to make a second application under Rule 3.9 for relief from sanction.

Mr Bailey relied on two authorities in support of the submission that relief from sanction was difficult to obtain prior to April 2013 and became significantly harder after April 2013 in the light of the Jackson reforms. The clearest of markers, he submits, was put down at para. 5.4 of Lord Justice Jackson’s report as quoted at para. 15 of Lord Justice Lewison’s judgment in Fred Perry Holdings Ltd v Brands Plaza Trading Ltd [2012] EWCA Civ 224: ‘courts at all levels have become too tolerant of delays and non-compliance with orders; in so doing they have lost sight of the damage which the culture of delay and non-compliance is inflicting on the civil justice system. The balance therefore needs to be redressed.’

Mr Bailey also relied on the decision of Master Macleod in Mitchell v Newsgroup Newspapers Ltd [2013] EWHC 2355 where he said:

Of course I have full regard to these dicta but I am quite satisfied that in the circumstances of this case it is entirely appropriate in my judgment to grant relief from sanction under CPR 3.9. The Claimant seeks to rely on the Defendants’ delay of some 7 weeks between the order of Mr Justice Hildyard dated 9^th August 2013 and the issue of the present application on 1^st October 2013. However I do not regard this delay as significant, in particular in the context of the fact that this case only began in March this year, was the subject of a speedy trial in May, and is now before the court for trial in October. Although an adjournment of the trial is required to enable outstanding directions to be complied with and the case got ready for trial, that adjournment need not be for an excessively long period.

In addition, as already mentioned, Mr Bailey submitted that the Defendants were unable to have a second bite of the cherry under CPR 3.9 and had to make their application under CPR 3.1(7). I have rejected that submission. Nevertheless I should refer to the two authorities on which he relied in relation to Rule 3.1(7). The first is Collier v Williams [2006] 1 WLR 1945 where at para. 39 Lord Justice Dyson, giving the judgment of the court, which also comprised Lords Justices Neuberger and Waller, said this:

That was the first case relied on by Mr Bailey. The second was the case of Tibbles v Sig plc [2012] 1 WLR 2591 where Lord Justice Rix at para. 39 helpfully set out a number of conclusions to be drawn from the jurisprudence. Rather than reciting all of those matters, I simply refer to those that seem most pertinent on the facts of this case:

Having given full consideration to both those Court of Appeal authorities, I am firmly of the view that the appropriate rule of court to consider on this application is CPR 3.9. To the extent that Mr Justice Hildyard’s order of 9^th August needs to be varied or revoked pursuant to CPR 3.1(7), I consider that the matters set out in this judgment fully justify such a variation or revocation and that in the circumstances it is appropriate to grant the Defendants’ application.

Finally, there were, as I mentioned at the outset of this judgment, two other matters that the Defendants sought by way of variation to the freezing order, namely, that the value of the assets subject to the freezing injunction be reduced from £4.1 m to £2.5 m and that the Defendants be permitted to spend a reasonable sum of their own money on legal representation. As I understand it, certainly the second of those matters is agreed and ought not to be a matter of dispute. As to the first, I am unsure as to whether an agreement has been reached but if necessary I am prepared to rule on it.