CFC 26 Ltd & Anor v Brown Shipley & Co Ltd & Ors

This judgment addresses the question of whether a civil restraint order (“CRO”) should be made against Mr Din Hessam Yeganeh, whom I added as the sixth defendant to the present proceedings on 29 November 2016. The first and second defendants contend that I should make an extended civil restraint order (“ECRO”). The application is resisted by Mr Yeganeh.

I outlined some of the history of this and related litigation in a judgment I gave in these proceedings on 29 November of last year: see [2016] EWHC 3048 (Ch). This section of the current judgment seeks to draw out from that judgment, and in a few respects to expand on, matters relevant to the application now before me. It uses the same abbreviations as the 29 November judgment.

In brief:

The litigation with which I am concerned all arises out of an underlease of Sofia House;

On 10 October 2014, Mr Yeganeh applied for an injunction to restrain the Receivers from selling Sofia House. Sales J dismissed the application on 15 October and ordered Mr Yeganeh to bear the Receivers’ and Banks’ costs;

Mr Yeganeh had by then issued the 2014 Claim, to which the Receivers and Banks were defendants. On 19 January 2015, however, Birss J ordered the claim form to be struck out and judgment to be entered for KBL on the counterclaim. Birss J’s order also provided for Mr Yeganeh to pay the defendants’ costs of the proceedings. In his judgment, Birss J said that he would “assume in Mr Yeganeh’s favour that he has some arguable Claim or arguable Defence to the Counterclaim”, but that there was “no alternative that has any air of justice about it other than to give judgment in default on the counterclaim and to strike out these proceedings for failure to serve the Particulars of Claim”;

By an application notice dated 10 February 2015, Mr Yeganeh sought an order for the applications that had been before Birss J to be re-listed and relief from sanctions;

At much the same time, SHG, of which Mr Yeganeh is the ultimate beneficial owner, issued the 2015 Claim against the Receivers and Banks;

On 15 July 2015, Mr David Halpern QC, sitting as a Deputy High Court Judge, dismissed Mr Yeganeh’s application for the matters before Birss J to be re-listed and relief from sanctions. He further ordered Mr Yeganeh to pay the defendants’ costs on the indemnity basis and recorded that he considered the application to be totally without merit. On the same occasion, Mr Halpern acceded to an application in the 2015 Claim for security for costs. Mr Halpern made an order requiring SHG to give security of £174,500 to the Receivers and £225,000 to the Banks;

Mr Yeganeh and SHG sought to appeal Mr Halpern’s orders, but without success. On 26 November 2015, Patten LJ refused to grant permission to appeal and characterised the applications for permission as totally without merit;

SHG failed to provide the security for costs that Mr Halpern had directed, with the result that the 2015 Claim was struck out;

The 2016 Claim was issued on 25 February 2016 on the footing that SHG and Mr Yeganeh had on 15 February assigned their claims against the defendants to CFC, another company ultimately owned by Mr Yeganeh. The defendants comprised the Banks, Concord and the Council;

The defendants all issued applications in the 2016 Claim for the claims against them to be struck out and/or for summary judgment in their favour. Those applications came before me in October of last year. At the hearing, the defendants maintained that the assignment to CFC by SHG and Mr Yeganeh of their claims was invalid. On the morning of the second day of the hearing, counsel for CFC told me that it was no longer contended that the assignment was effective but that SHG was applying to be joined to the proceedings as claimant;

For the reasons given in my judgment of 29 November 2016, I dismissed the proceedings as against the Banks and Concord and struck them out as against the Council. I also certified the claims against the Banks and Concord to be totally without merit and decided that, notwithstanding the fact that he was not a named claimant, the defendants’ costs (as regards the Banks and Concord, on the indemnity basis) should be borne by Mr Yeganeh as well as CFC and SHG. In that connection, I concluded in a supplemental oral judgment that Mr Yeganeh was behind the litigation and particular corporate entities and had been “effectively controlling the litigation and supporting it” and had been “doing so with a view to obtaining a personal benefit if it is successful”. In a further oral judgment, I said:

The order I made on 29 November 2016 provided, too, for Mr Yeganeh to be joined as the sixth defendant to the proceedings and for the application for a CRO to be considered at a later hearing.

CPR 3.11 empowers the Court to make a CRO in the circumstances and with the consequences specified in Practice Direction 3C.

Practice Direction 3C provides for three kinds of CRO. A “limited civil restraint order” may be made where a party “has made 2 or more applications which are totally without merit” (paragraph 2.1), an ECRO may be made where a party “has persistently issued claims or made applications which are totally without merit” (paragraph 3.1) and a “general civil restraint order” may be made where “the party against whom the order is made persists in issuing claims or making applications which are totally without merit, in circumstances where an extended civil restraint order would not be sufficient or appropriate” (paragraph 4.1).

What the Banks seek in the present case is an ECRO. Someone against whom such an order is made is, unless the Court otherwise orders, “restrained from issuing claims or making applications” in specified Courts “concerning any matter involving or relating to or touching upon or leading to the proceedings in which the order is made without first obtaining the permission of a judge identified in the order” (paragraph 3.2 of Practice Direction 3C).

As its name suggests, a “limited civil restraint order” is more limited in effect than an ECRO. Such an order restrains the person affected only from making further applications in the particular proceedings in which the order is made. As Mr Christopher Boardman, who appears for the Banks, observed, such an order would be pointless in the present case.

The parties differ on, among other things, the following:

Whether an ECRO requires there to have been at least three totally without merit claims or applications. Mr Marc Glover, who appeared for Mr Yeganeh, submitted that the word “persistently”, as used in paragraph 3.1 of Practice Direction 3C, carries that implication, but Mr Boardman said otherwise;

Whether a CRO can be based wholly or in part on claims or applications made in the name of someone other than the subject of the CRO. Mr Boardman argued that claims or applications in the names of third parties can potentially be relevant, but Mr Glover disputed this;

Whether, on the facts of the present case, it is appropriate to make an ECRO.

I shall take these topics in turn.

The meaning of the word “persistently”, as used in paragraph 3.1 of Practice Direction 3C, was considered by Mr Edward Bartley Jones QC, sitting as a Deputy High Court Judge, in Courtman v Ludlam [2009] EWHC 2067 (Ch). He concluded that “persistence” requires at least three wholly unmeritorious applications. He explained:

In Lilley v Euromoney Institutional Investor plc [2014] EWHC 2364 (Ch), Birss J said (in paragraph 96) that he agreed with Mr Bartley Jones that “‘persistence’ in sub-paragraph 3.1 of PD 3C must require more than two claims or applications which are totally without merit”. I followed that decision in Miller v Gardiner [2015] EWHC 1712 (Ch) (see paragraph 59), and in Richards v Investigatory Powers Tribunal [2017] EWHC 560 (QB) Nicol J accepted (at paragraph 8) that “there must have been at least three claims or applications characterised as totally without merit in order for a litigant to have acted ‘persistently’ in this manner”.

Mr Boardman nonetheless submitted that an ECRO does not depend on any particular number of unmeritorious claims or applications having been made. What matters, he argued, is that the conduct in question has extended over more than one set of proceedings. In this connection, he took me to the decision of the Court of Appeal in Connah v Plymouth Hospitals NHS Trust [2006] EWCA Civ 1616. In that case, Dyson LJ, with whom Morritt C and Arden LJ agreed, said (in paragraph 23):

It seems to me, however, that Mr Bartley Jones was right to take the view that an ECRO cannot be made unless there have, overall, been at least three totally without merit claims or applications. Had it been intended that an ECRO should be possible where there had been no more than two unmeritorious claims or applications, provided that they had been spread across more than one set of proceedings, the draftsman could have said so in terms. The Practice Direction is not so framed, but instead uses the word “persistently”. Mr Boardman is in effect submitting that a person can be said to have issued claims or applications “persistently” if he has made just one application in each of two sets of proceedings. In my view, however, such a person would not naturally be described as issuing claims or applications “persistently”, and the point is reinforced by the contrast with the “2 or more” found in paragraph 2.1 of the Practice Direction.

Can a CRO be made against someone who has not issued the requisite number of wholly unmeritorious claims or applications in his own name but is associated with one or more persons who have issued such claims or applications? Suppose, say, that an individual has issued one totally without merit application himself and that a second such application has been issued by his spouse or by a company of which he is a director and shareholder or by a trust in which he has an interest. When, if ever, would there be power to make a limited CRO under paragraph 2.1 of Practice Direction 3C? To what extent (if any), too, can claims or applications issued in the names of third parties found an ECRO?

There is plainly a case for saying that the language of Practice Direction 3C suggests that it looks no further than the named claimants or applicants. Paragraph 3.1 of the Practice Direction, for example, refers to “a party” who “has persistently issued claims or made applications”. The “party” who has “issued” a claim would normally be taken to be the named claimant, and the “party” who has “made” an application would ordinarily be understood to be the person identified as the relevant claimant or defendant. On that basis, the Practice Direction would not apply unless the person against whom a CRO was sought had made the relevant number of claims or applications in his own name. By the same token, a CRO could not, presumably, debar the person against whom it had been made from causing an individual or entity associated with him from making a claim or application.

That that should be the position might be said to be consistent with “the distinct legal personality of companies” which “has been a fundamental feature of English commercial law for a century and a half” (to quote from Lord Sumption’s judgment in Swynson Ltd v Lowick Rose LLP [2017] UKSC 32, [2017] 2 WLR 1161). It would not, moreover, seem to make any sense for a person to be vulnerable to the making of a CRO or liable to breach one unless he truly bore responsibility for the making of the material claim or application. If, for instance, a person played no part in a company’s decision to bring a claim, I should not have thought that it could be right for him to be considered to have “issued” the claim even if he was a director and had a small shareholding.

On the other hand, the ability of the Courts to make CROs could be seriously undermined if Practice Direction 3C were read as focusing exclusively on named claimants and applicants. Wall J made a similar point in Mephistopheles Debt Collection Service v Lotay [1994] 1 WLR 1064, which concerned a “civil proceedings order” made under section 42 of the Senior Courts Act 1981 (which, among other things, means that “no civil proceedings shall without the leave of the High Court be instituted in any court by the person against whom the order is made”). Wall J said (at 1170):

Another case dealing with a civil proceedings order, Attorney General v Flack (29 November 2000, Divisional Court), also points towards a willingness to look beyond named parties. There, a winding-up petition had been presented by a company newly incorporated by the respondent and Rattee J, who had heard an application to restrain further steps being taken on the petition, had said:

There are, moreover, circumstances in which the Courts view someone who is not a named party as the “real” party to litigation. That can be the case with an application for a costs order to be made against a non-party. In Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39, [2004] 1 WLR 2807, Lord Brown, giving the judgment of the Privy Council, explained (at paragraph 25):

On balance, it seems to me that, in a comparable way, references in Practice Direction 3C to a “party” who has issued claims or made applications, or to a “party” issuing claims or making applications, should be read as extending, not only to the named claimant or applicant but, where different, to the “real” claimant or applicant. Where the person against whom a CRO is sought has been the “real” party behind totally without merit claims or applications, it must, I think, be possible to take them into account. Likewise, if a claim or application is issued in the name of someone who is not subject to a CRO, but the “real” claimant or applicant has had such an order made against him, the CRO will, as it seems to me, bite on the claim or application. That is by no means, though, to say that a CRO will be in point wherever, say, the person subject to it has an interest, however small, in a company or trust that brings a claim or makes an application.

As things stand, the following claims and applications have been characterised as totally without merit:

Mr Yeganeh’s application in the 2014 Claim for the applications that had been before Birss J in January 2015 to be re-listed and relief from sanctions (see paragraph 3(iv) and (vi) above);

The applications by Mr Yeganeh and SHG for permission to appeal against the orders Mr Halpern made in the 2014 and 2015 Claims in July 2015 (see paragraph 3(vii) above); and

The claims made against the Banks and Concord in the 2016 Claim (see paragraph 3(xi) above).

Mr Yeganeh has never been a named claimant in the 2016 Claim. In my view, however, he should be regarded as a “real” claimant in the proceedings. As already mentioned (paragraph 3(xi) above), I concluded on 29 November 2016 that Mr Yeganeh was behind the litigation and particular corporate entities and had been “effectively controlling the litigation and supporting it” and had been “doing so with a view to obtaining a personal benefit if it is successful”.

For similar reasons, Mr Yeganeh ought, I think, to be considered a “real” appellant for the purposes of the application for permission to appeal which SHG made and Patten LJ dismissed.

Mr Boardman sought to persuade me that the application for an injunction that Sales J dismissed (see paragraph 3(ii) above) and the 2014 Claim should each also be viewed as totally without merit. While, however, “the court is entitled to address earlier applications not characterised as totally without merit, decide that they were in fact totally without merit and then take them into account in considering an Extended Civil Restraint Order” (as Birss J noted in the Lilley case, at paragraph 104), I do not consider it appropriate to adopt that course here. So far as the injunction application is concerned, Sales J neither recorded that the application was totally without merit nor stated that costs should be assessed on the indemnity basis. As regards the 2014 Claim, Birss J disposed of it by reference to the failure to serve particulars of claim rather than any lack of underlying merit. In fact, he stated in terms that he was assuming in Mr Yeganeh’s favour that he had some arguable claim.

Mr Yeganeh is, accordingly, to be taken as having made at least three totally without merit applications (and two more if the failed applications for permission to appeal are taken separately and the unsuccessful claims in the 2016 Claim against the Banks and Concord are seen as two claims). In all the circumstances, Mr Yeganeh is, I think, to be considered to have “persistently issued claims or made applications which are totally without merit” within the meaning of paragraph 3.1 of Practice Direction 3C. I noted on 29 November of last year that the 2016 Claim represented the “third occasion on which Mr Yeganeh [had] sought to bring proceedings in respect of the sale of Sofia House” and that, “undeterred” by the striking out of the earlier claims, he had been “responsible for a third set of proceedings being issued” (see paragraph 3(xi) above). That, it seems to me, is the behaviour of someone who has “persistently” issued unmeritorious claims or applications.

That, however, is not the end of the matter. Mr Glover argued that I should not make an ECRO against Mr Yeganeh even if I were satisfied that he had “persistently” made unmeritorious claims and applications. An ECRO, he suggested, would be very much a bridge too far. He pointed out that Mr Yeganeh and his companies had always had lawyers acting for them and said that cases in which CROs have been made have involved much worse conduct. Mr Yeganeh, he suggested, has now moderated his behaviour and there is no real risk of his behaving inappropriately in the future.

As, however, Mr Boardman noted, Mr Yeganeh has never put in any evidence in answer to the application for an ECRO. Mr Glover’s contentions are, moreover, undermined by a witness statement that Mr Yeganeh made on 23 September 2016. That statement includes these passages:

Taking everything together, it seems that Mr Yeganeh is someone who, as regards matters relating to the sale of Sofia House, refuses “to take ‘no’ for an answer” (to adopt words used by the Court of Appeal in Bhamjee v Forsdick, at paragraph 42). That being the case, it is appropriate, I think, for me to make a two-year ECRO against him.

I shall make an ECRO against Mr Yeganeh for a two-year period.