Thevarajah v Riordan & Ors

MR JUSTICE HILDYARD: I have to consider at this stage in this matter two questions, which are intimately connected. The first is whether the defendants have complied with an unless order made by Mr Justice Henderson on 21 June 2013 with respect to the disclosure of information required to be provided in aid and in order to ensure the proper release of a freezing order which had previously been made. The second is whether, if there was such a failure, the defendants should be afforded relief from that sanction under the jurisdiction conferred by CPR 3.9 which, I shall explain later, has recently been substantially redrawn.

I do not think it necessary to describe the context of the claim which relates to the purchase and sale of that property. In so far as necessary, if this judgment is required to be elaborated, the underlying facts are summarised in paragraphs 15 to 19 of the skeleton argument provided to me on behalf of the claimants.

I deal with each of the related questions in turn. So far as the question of whether Mr Justice Henderson’s order has been complied with, I think it is fair to summarise the matter in this way: that although they criticised the manner of the presentation of the various deficiencies said to have been identified by the claimants (which were divided into some 39 points) as having, as they put it, painted an overly bleak picture and over-egged the pudding, sometimes in an inflammatory manner, the defendants are constrained to accept that in a number of respects the order has not been complied with.

The Defendants urge on me that their failures in this regard were de minimis. Further, or alternatively in other respects, they were the product of matters beyond their control. In particular, I would instance two areas of disclosure.

The first area is the charge documentation which was expressly sought from five financial institutions by letters which were, in fact, prepared by the claimant’s solicitors and sent to those institutions as is recorded in the preamble to Mr Justice Henderson’s order.

Suffice it to say, the position in that regard is less than satisfactory. The position, in reality, is, I think I am right in saying, that none of the charges has been made available. The excuse for that is that charges were granted in favour of the London office of the Bank of Cyprus, who have refused to co-operate in that regard through Mr Andrew Fouli who is their Recoveries Manager. I was shown correspondence in this regard and will return to that shortly.

The second instance, and I stress these are only instances, of a failure to comply with the unless order of Mr Justice Henderson relates to the requirement to provide proper detailed disclosure of documents as to the manner in which this litigation is funded on behalf of the defendants and the source of that funding. Again, there has been an obvious failure to provide the details which are required in order that the claimants and the court should be satisfied that the funds are coming out of a disclosed source and are being used only for purposes which are not inconsistent with the general tenor of the freezing orders that have been made.

Returning to the position of the Bank of Cyprus and the failure to disclose the various charges identified in correspondence in general terms, it has been urged upon me by Mr Davies of counsel, on behalf of the defendants, that the reason for that may be, and he fairly put this in terms of conjecture, that relations between the defendant and the Bank of Cyprus and Mr Fouli, in particular, are strained, have been worsened in consequence of the defendant’s increasing indebtedness and notice of interlocutory orders, and that this and the bank’s wariness may be the reason for the delay.

As I say, Mr Davies was most fair and measured in his presentation and simply put that as a matter of conjecture. I have to say that the test of the conjecture, which is provided by correspondence, does not encourage me to accept the excuse which is sought to be suggested. As I read it, at least as at 15 July, the email traffic between Mr Fouli and the defendants and their solicitor indicates a close and informal relationship with no suggested difficulty or impairment in providing whatever was required.

It is true that a subsequent email from Mr Fouli to Mr Fletcher, dated 31 July, is altogether more formal and suggests difficulties and emphasises quite forcefully supposed inaccuracies in the way that the manner has previously been put forward. Another explanation, since we are in the world of conjecture, is that Mr Fouli’s correspondence rather reflects what he is given to understand may be the most appropriate response from the defendant’s point of view.

Accordingly, although valiantly advanced, I do not consider the conjecture provides any sufficient justification for the failure in this regard.

When there is, added to that, two at least further factors, it does seem to me most difficult to reach any other conclusion than that there have been substantial failures to comply with the unless order. I have in mind, in this regard, most particularly a late entry into the copious files in this matter, in the form of a statement of an account in HSBC (A Bank) which, in the evidence, the defendants have suggested was not an account in the name of any company named in the relevant paragraph of Mr Justice Henderson’s order but which, it transpires, without any doubt or equivocation, is a Prestige Properties Limited account; Prestige Properties Limited being the first of the companies identified in the sequence of intended targets of the order.

This revelation is a very unsettling turn of events which, of course, impacts also on the question which I have to address under CPR 3.9. I should also mention, as a further illustration of the reasons for my conclusion that there has been a material failure, which cannot be dismissed as de minimis, to explain the fact that although the approved letters sent off to financial institutions specified that any documents should be returned, not to the defendants but to the claimant’s solicitors, they were returned instead to the defendants in so far as there was compliance at all.

I do not mean to suggest that in every one of the respects relied on by the Claimant a deficiency or fault has been established. But the question is not whether each and every failure has individually been established but whether serous failures have been established. It seems to me, taking into account the four instances that I have indicated, that they have been.

I turn, therefore, to the second issue which arises under the new CPR 3.9 provision. Under the old provision, the court was provided with and required to go through a checklist as the means of assessing whether relief from sanctions should be granted. I will not rehearse them but I accept that while this checklist has been removed, the sort of considerations which were adumbrated in 3.9(1)(a) through to 3.9(1)(i) are matters which will be borne in mind by the court because they are the sort of things which, in all fairness, enable the court to assess whether it is right to grant relief from the sanction which a previous court has thought it right to impose.

At first blush, of course, the removal of the checklist might be thought to introduce a less rigorous regime or a more amorphous approach. I do not think that is correct. On the contrary, it is plain, both from the description of the reasons for the changes given in the July 2013 supplements to the White Book on Civil Procedure and the indications by way of foreshadowing the future given by Lord Justice Jackon in Fred Perry Holdings Limited v Brands Plaza Limited [2012] EWCA Civ 224, that the intention is to encourage the court to be less ready than previously to grant relief against sanctions for the clause, in the interests of the efficient conduct of the business of the courts.

The background for that is the conclusions drawn and the recommendations suggested in the review of civil litigation costs, that the courts have become, if anything, too ready to grant relief from sanctions. The position is not now (and never has been) that the court will slavishly adopt the attitude that rules are rules and there is no escape from them: after all there is always the express escape valve of CPR 3.9 in an appropriate case. But the court should also bear in mind that a message that default will be tolerated is harmful not only for the conduct of the case in hand but for the proper administration of justice generally.

It seems to me, therefore, that if anything the new rule, while not imposing a checklist, demands a robust approach from the court. It requires the court to be fully satisfied that relief from sanction, thought to be appropriate, is justified in the particular case; the court being slow to come to the conclusion that it is.

Nevertheless, Mr Davies correctly urged on me that whatever might be the message, it was always essential that the court should, and should be seen to consider each case on its own facts and, of course, I do so.

However, the position in this case is not encouraging from the point of view of the court and the required approach. I referred, albeit that it was decided under the previous regime, to the decision of the Court of Appeal given by Sir John Chadwick in Tarn Insurance Services Limited (in administration) v Kirby & Others [2009] EWCA Civ 19. This was a case which my own research over the short adjournment revealed and I gave counsel an albeit short time in which to consider it.

The case seems to me important because it indicates that the court, when asked to give relief from sanctions in the context of an unless order and, in particular, in an unless order which has been made to enforce and police compliance with the provisions of a freezing order, should adopt a rigorous approach.

In that case, at first instance, Mr Justice Norris had been persuaded to grant relief from the sanction of an unless order principally because there was no prejudice to the trial date and he thought it a very compelling consideration that there were, as is often the case in the context of freezing orders, allegations of deceit which the defendants should not be prevented from addressing substantially by way of defence. On appeal, Sir John Chadwick did not agree with that approach and did not consider that to be an overriding consideration at all. On the contrary, he stated the true test under the then CPR 3.9 rule to be:

“Whether on the basis that the previous unless order was a proper order to make for the purposes of furthering of an overriding objective in the circumstances known at the time, it remained appropriate, in the circumstances known at the time of the application for relief of the sanction, to continue to allow the sanction to take place.”

In this regard, he indicated that if non-compliance was established, material change in circumstances would have to be demonstrated to excuse it. He instanced a material improvement in the position of the defendant such as to suggest that it had a much stronger case than had been identified when the unless order was made.

Again, valiantly, Mr Davies suggested in this regard that there were distinguishing features, in particular that there was now a defence, that there had been real and reasonable efforts to comply (he put it in terms of “all reasonable steps to comply”), that there had been no breach of the freezing order and that the breach, if there was one, of the failure to comply with the unless order had not been deliberate. I have to say that I do not regard those points as constituting such a change of circumstances as might have been in the mind of Sir John Chadwick.

In this case, in fact, and as was submitted on behalf of the claimants by Mr Bailey, counsel, the defendant’s position has changed but possibly worsened. For example, whereas previously they were denying liability on the basis of a denial of any contractual relationship capable of being enforced they have now admitted the contract, though they query its interpretation and effect.

I do not read the Tarn case as being confined to cases where the breach was deliberate and where there had been a breach of the freezing order itself. I do not accept in this case that the defendants have taken all the reasonable steps that were available to them to secure the documents as regards any of the four instances to which I have drawn attention in the previous part of this judgment.

As it seems to me, taking the example of the charge documentation, a really rigorous and concerted effort to obtain from the bank those documents would, in all likelihood, have met with success, and if it did not, the obvious recourse, if solicitors’ letters did not, as it were, secure the desired result, was immediately to inform the claimants of the difficulties and to apply to the court, if necessary. This could have included relief against Mr Fouli and the Bank of Cyprus UK in order to secure their compliance.

I have already identified other respects in which I do not consider that all reasonable steps were taken and the concerns I have felt in consequence of the late revelation about the position with HSBC.

When I add all this in the mix and test it against the prescription which CPR 3.9, in its newest form, conveys, namely that the court must be very cautious before granting what, in effect, is a dispensation from an order previously made, and when I take into account the factual context more generally, which includes the fact that the unless order was made after five previous applications, and where I also take into account the somewhat remarkable instances where the defendants have not provided the evidence that one would have expected, to explain themselves, I feel constrained to refuse any relief from the sanctions.

As I hope has been evident from the hearing, I personally regret the need for such a step and I offered every opportunity, I hope, to put the best possible gloss on the situation. It is a very sorry thing when people deny themselves the right to put forward their case, particularly in the context of allegations of a very serious nature indeed. However, I do not see that any sufficient ground for relief from a sanction carefully imposed has been demonstrated; and the result must follow that no such relief should be granted.