Gallaher International Ltd. v Tlais Enterprises Ltd. Between :

This Judgment deals with two out of four applications made by the parties at a Pre Trial Review in this case. Originally, the parties estimated the PTR for one day’s hearing. Unfortunately both that estimate and the estimate of the pre-reading time needed were very over optimistic. Therefore the first part of the PTR was held on 14^th February 2007. On that day I heard argument on two of the four applications and made a decision in one. The balance of the PTR hearing took place, today, Friday 23^rd February. This judgment is being handed down at the renewed hearing.

There are two actions. At a previous CMC it has been ordered that they should be tried together. The trial is due to start on 17^th April 2007. Its current estimate is for 12 weeks. I regard that estimate as also being over optimistic.

The claimant in each action is Gallaher International Limited, which is a subsidiary of Gallaher Group PLC, the well known tobacco company. I will refer to the claimant as “GIL”. The defendant in action 2005 Folio 185 is Tlais Enterprises Limited. I will refer to the defendant in this action as “TEL”. This is a company incorporated under the laws of Cyprus. Under a distributorship agreement dated 24^th January 2003 which was effective from 1^st May 2002, GIL appointed TEL as its exclusive distributor of certain brands of cigarettes in a number of defined territories. Most of those territories were in the Middle East and Africa. The brands of cigarettes for which TEL was appointed exclusive distributor were “Dorchester”, “Sovereign” and “Stateline”.

In the second action, 2005 Folio 986, the defendant is Mr Ptolemeos Tlais. He is the controlling figure of TEL.

In Folio 185, GIL claims a declaration that its termination of the distributorship agreement, by letter dated 4^th March 2005, was valid. TEL has not only defended that claim but also made Counterclaims. I will have to characterise those more fully later on.

In Folio 986, GIL claims US$ 4 Million from Mr Tlais under a letter agreement dated 30^th April 2002, alternatively US$ 2 Million under letter agreements dated 29^th April and 8^th May 2002. In that action Mr Tlais also both defends the claim and asserts substantial Counterclaims.

I do not intend to set out in detail the facts which form the background to the claim and the Counterclaims in the two actions. These are set out in a Judgment of Gloster J, which was handed down on 20^th September 2006. In that judgment, Gloster J gave her reasons for ordering TEL to pay £550,000 by way of security for the costs of GIL in defending TEL’s Counterclaim. (Subsequently further security for costs was ordered by Gloster J).

The four applications that I was asked to deal with are as follows:

TEL’s application dated 29^th January 2007 for an order that “all issues of forensic accountancy be dealt with a separate hearing”, i.e. a separate hearing from the trial due to start on 17^th April 2007.

TEL’s application dated 7^th February 2007, for relief from sanctions pursuant to CPR Part 3.9(1). This application arises because TEL has failed to comply with an “unless” order made by David Steel J on 31^st January 2007, which provided that, unless TEL served its expert accountancy evidence by no later than 12 noon on 14^th February 2007, TEL would be debarred from adducing such evidence at trial. TEL now applies for an order permitting it to adduce expert accountancy evidence despite its failure to comply with this “unless” order. It seeks an order permitting it to adduce this evidence either at the separate hearing as proposed in the application of 29^th January 2007 or if that application is unsuccessful, at the main trial. In the latter event TEL seeks an order that it be permitted to serve its expert accountancy evidence by 4pm on 26^th March 2007. Originally the date sought was 16^th March 2007, but this was altered by Mr Hill on behalf of TEL, in the course of argument on 14^th February 2007.

GIL’s application dated 22^nd January 2007 for additional security for costs in relation to TEL’s Counterclaim. GIL has already been awarded security of costs up to the time of exchange of experts’ reports in the sum of £1,050,000. GIL seeks further security of £1.3 Million. TEL has made a cross application for payment out of a proportion of the security that has already been paid by it into Court.

TEL’s application dated 6th February 2007 to debar GIL’s expert on tobacco industry and market practice from giving evidence as an expert at the trial. The expert, Mr Rajiv Goel, is an employee of Gallaher Limited. TEL says that Mr Goel should be debarred from giving evidence because he lacks independence.

GIL issued proceedings in 2005 Folio 185 on 4^th March 2005, the same day it gave notice of immediate determination of the TEL distributorship agreement. The particulars of claim were served on 20^th April 2005. TEL served its Defence and Counterclaim on 30^th June 2005. A Reply and Defence to Counterclaim was served by GIL on 30^th December 2005.

The first CMC in Folio 185 was held before Colman J on 21^st October 2005. He made orders for the timetable leading up to the trial, which was then estimated to last eight to ten weeks. In the timetable, it provided for a PTR in the first two weeks of February 2007 and a trial date from April 2007.

Under the heading of “Expert evidence”, paragraph 9 of Colman J’s order states:

The second CMC was held before Gloster J on 26^th and 27^th July 2006. As a result of a consent order made by me on 23^rd May 2006, GIL’s application for security for costs was also dealt with at the same hearing. At the CMC, TEL applied for a split trial of the claim and the Counterclaim, the effect of which would have been that large parts of the Counterclaim would have been held over to a separate trial. That application was opposed by GIL, on the basis that there was a significant overlap between the issues for trial and the issues that would be determined at the second trial. Gloster J ordered that TEL’s request for the trial to be split between liability and quantum be “dismissed at this stage”. However, the Judge also ordered that further consideration was to be given to this request after the service of statements of fact and expert reports. (See paragraph 15 of the order of 27^th July 2006).

At the hearing on 26 – 27 July 2006, Gloster J ordered TEL to put up £550,000 as security for costs of the counterclaim. Subsequently, GIL made a further application for further security for costs of defending TEL’s Counterclaim. The application was for a further sum of £1,120,018 on top of the £550,000 already ordered. Gloster J heard the second application on 22^nd September 2006 and ordered an additional sum of £500,000 as further security for GIL’s costs of defending the Counterclaim up to and including experts’ reports.

TEL did not provide any of the security for costs as ordered. TEL also failed to exchange its statements of witnesses of fact by 20^th October 2006, as had been ordered by Gloster J at paragraph 11 of the order of 27^th July 2006.

On 8^th December 2006, GIL sought “unless” orders in respect of both the security for costs and the exchange of witness statements. Gloster J ordered that TEL would not be permitted to call any witnesses of fact whose statement had not been served by 5pm on Friday, 29^th December 2006. The Judge also ordered that unless the security for costs that had been ordered was provided by 12noon on 11^th January 2007, TEL’s Counterclaim would be struck out without further order.

At the same hearing on 8 December 2006, Gloster J made adjustments to the timetable leading to the trial. In particular, the Judge ordered that: (i) TEL must serve its experts’ reports in the fields of market and forensic accountancy on or before 19^th January 2007; (ii) the claimants were to respond with their corresponding experts’ reports by 23^rd February 2007; (iii) TEL would serve Reply reports before 9^th March 2007; and (iv) after meetings and joint Memoranda by the experts, supplementary reports were to be exchanged no later than 5^th April 2007.

On 8^th January 2007, TEL paid into court the sum of £1,050,000 by way of security for costs, pursuant to Gloster J’s order of 8 December 2006. On 29^th December 2006, TEL had exchanged witness statements, although a number of the statements remained unsigned at that stage. (Subsequently they have been signed). On 19^th January 2007, TEL served a one page expert report in the field of markets. However TEL failed to serve an expert report on forensic accountancy.

GIL applied to court for a further “unless” order in respect of TEL’s forensic accountancy expert report. That application was heard by David Steel J on 31^st January 2007. David Steel J ordered that TEL would not be permitted to call expert evidence in the field of forensic accountancy unless it had served the relevant expert report by 12 noon on 14^th February 2007. In the course of giving judgment on that occasion, David Steel J said:

TEL has not complied with this “unless” order. The proleptic application for relief from the sanction imposed for failing to comply with David Steel J’s order of 31^st January 2007 was issued by TEL on 7^th February 2007.

At the hearing on 14^th February I heard TEL’s application for an order that “all issues of forensic accountancy be dealt with at a separate hearing”. I ruled that this application should be dismissed. I said I would give reasons later.

On 14^th February I also heard TEL’s application for relief from sanctions. However, it became clear during the course of argument that it was imperative that I have further information on the question of when TEL’s expert accountancy evidence could be ready, presuming I was otherwise prepared to grant the relief sought. I ordered that this information must be provided to the court and GIL by 12 noon on Thursday, 15^th February 2007. I also stated that GIL could, if it wished, make any short comments (in writing) it wished to make upon receipt of this information. I said I would give a ruling, without reasons, in advance of the restored hearing on 23^rd February 2007. My ruling was to permit relief from sanctions, albeit on very strict conditions.

At the restored hearing of the PTR, I will hear argument in relation to GIL’s application for further security for costs and TEL’s application to exclude the evidence of Mr Goel.

On behalf of TEL, Mr Hill accepted that TEL was in clear default of the court orders regarding production of the accountancy expert report. He also accepted that the difficulties about producing such a report lay exclusively with TEL and its advisors and that TEL had been aware of these problems for some time.

The accountancy report is needed to support TEL’s counterclaim for loss of profits which it says that TEL would have earned, but for what TEL characterises as GIL’s wrongful termination of the distributorship agreement. The accountancy report is intended to assess TEL’s margins and profits on the business that it had prior to termination of the agreement with GIL. It will attempt to assess the profits that TEL would have made from the distributorship agreement if it had continued for its full term. (There is a dispute between the parties on this aspect: TEL alleges the agreement would have run until 2012; GIL says it would have run only until 2007).

Mr Hill accepted that TEL did not maintain detailed and accurate profit and loss accounts for its business during the period of the distributorship agreement. (This is confirmed at paragraph 24 of the witness statement of Mr Michael Clark dated 29^th January 2007). Therefore, in order to produce the accountancy expert report, the first step that has to be taken is to reconstruct TEL’s profit and loss accounts for the period of the distributorship. This exercise will have to be done using whatever underlying material is now available.

The next stage in the process will be to assess the profits that TEL says that it has lost as a result of what it alleges was GIL’s wrongful termination of the distributorship agreement. That process will use the conclusion, reached at the first stage of the enquiry, on TEL’s historic margins. The report at this second stage will also have to use various assumptions about the markets and sales of the brands for which TEL had the distributorship during the period until the end of the distributorship agreement, had it run its full course.

Mr Hill submitted that an order which split off the accountancy issues from the main trial should be made for three reasons, all of which he said constituted good case management. First, such an order would lead to a saving of costs. Thus (he said), if the accountancy issues were “hived off” then there would be no need for TEL to produce its report now, nor would there be any need for GIL to respond to it. If TEL lost on the question of whether GIL’s termination of the distributorship agreement was wrongful, then there would be no need for this area of expert evidence at all.

Secondly, court time would be saved. Mr Hill accepted that the time that would be occupied by the accountancy experts was not particularly great. However he submitted that the total costs of 2 to 4 days of a trial of this magnitude are sufficiently large to worth saving if at all possible. Thirdly, the issues at the main trial would be narrowed. Further, if the accountancy evidence awaited the judgment on the main trial, then it may well be that the issues that need to be covered would be narrower than might appear at present.

Mr Hill put his arguments in a most appealing way. However, I cannot accept them. First, as Mr Hill himself accepted, this application does not originate from case management considerations only. It is a reaction to the situation in which TEL now find itself, having failed to produced its accountancy expert report by 14^th February as ordered by David Steel J. That is a factor I must take into account when deciding whether to grant the order, as Mr Hill accepted. Secondly, I accept the submission of Mr Rabinowitz QC that accountancy evidence and accountancy issues cannot be separated from other issues which will have to be dealt with at the main trial. Mr Rabinowitz gave two examples of this linkage. First, the conclusions of TEL’s expert accountant on TEL’s sales during the distributorship agreement may not be accepted by GIL’s experts. GIL may wish to cross examine Mr Tlais and Mr Michael Clarke, a senior employee of TEL at the time, on the question of sales and margins and the data on which TEL’s accountancy expert has based his conclusions. It would be wasteful and costly to leave out that issue at the first trial, thus necessitating the recall of Mr Clarke and Mr Tlais at the second trial to deal with those issues.

Secondly, the accountant’s conclusions on the margins of TEL and its alleged loss of profits during the remaining period of the distributorship agreement (ie. after termination but before the originally fixed determination date) will depend on the assumptions made about the available markets during that period. Therefore GIL will need to see the accountancy report in order to be able to challenge both TEL’s witnesses of fact and its market expert on these matters. That could not be done if the accountancy expert’s report for TEL was not available at the main trial.

Next, I do not accept Mr Hill’s submission that there will be a significant saving of costs. Both parties have already spent money on preparing accountant’s reports. Mr Rabinowitz told me that GIL has already spent £750,000 on preparing its accountancy expert report. I strongly suspect that if work stopped now, only to be taken up after the first trial, that would result in even more costs than if the work was carried out for the main trial.

Next, in my view, it is highly unlikely that issues will be narrowed if the accountancy aspect of the case were to be split from the main trial. In fact, as I have already indicated above, in my view the issues of accountancy and sales and the market are very closely intertwined.

Lastly, if there were a separate trial of the accountancy issues, it is, in my view, inevitable that the second part of the trial would be much delayed and would inevitably take longer than two to four days as suggested by Mr Hill. There would be no point in having that trial until judgment had been given in the first trial. That may be several months after the completion of the first hearing. There would then be a further delay whilst the parties prepared for the second trial. During that time I have no doubt that the parties would produce yet further issues which would result in a longer trial; perhaps up to a week or more.

Accordingly, for these case management reasons, I have concluded that it is not in the best interests of justice to order any split trial as proposed by TEL.

In order to deal with this application, I need to set out some more of the history of this case. When the second CMC was held before Gloster J on 26/27^th July 2006, the judge ordered that expert evidence be limited to industry, market and forensic accountancy issues as they were identified in a schedule to the judge’s order. In relation to forensic accounting, the schedule defined the issues to be considered by the parties’ experts as follows:

Accordingly, from 27^th July, TEL knew precisely what topics had to be covered by its forensic accounting expert. Moreover, I was told that Mr Clarke of TEL was present in court at that CMC.

TEL also knew throughout the period of this dispute that it did not have detailed and accurate profit and loss accounts for its business during the relevant period. Mr Hill accepted that there had been no attempt to reconstruct TEL’s accounts before the order of Gloster J made on 27^th July 2006. This was despite that fact that it was clear from the time of the first CMC before Colman J on 21^st October 2005 that it was possible, indeed probable, that expert evidence in the field of forensic accountancy would be needed in support of TEL’s Counterclaim for loss of profits.

The evidence of Mr Michael Clarke is that, effectively, he has had responsibility within TEL for giving instruction and taking decisions concerning the current litigation. He states (para. 21 of witness statement) that he had discussions with TEL’s solicitors about the appointment of TEL’s accountancy expert in September 2006. That means that the discussion was more than six weeks after Gloster J’s order on 27^th July 2006.

Mr Clarke says that there were discussions about appointing a UK based accountant. However it soon became evident that a UK accountant’s fees for preparing the accountancy expert’s report would be in the region of £500,000. Mr Clarke says that TEL concluded that, taken together with the other costs of pursuing this case and the need to provide security for costs as ordered by Gloster J on 27 July 2006, TEL could not afford to employ a UK based accountant. Therefore TEL decided to appoint a Cypriot accountant to do the work of reconstituting the accounts of TEL. The plan was to give the results of this work to a UK accountant, who would then produce the expert report, using the preparatory work done by the accountant in Cyprus.

Mr Clarke has stated (witness statement, para. 27) that it was in the first week of October 2006 that he collected from TEL’s solicitors in London the relevant TEL files which the Cypriot accountant would require. Mr Clarke also states, in the same paragraph, that the Cypriot accountants C Agathocleous & Co, were instructed “at about the end of October/beginning of November ….”. Mr Clark states that he “…….. chased Mr Agathocleous for progress as regularly as I was able” and that Mr Tlais “….. also endeavoured to chase him on numerous occasions”. No details of this “chasing” are given. I doubt whether very much chasing was done, particularly as Mr Clarke says that both he and Mr Tlais were heavily involved in other aspects of the litigation, including in particular work on their respective witness statements, which eventually totalled over 300 pages between them. Mr Clarke goes on to say that he talked to Mr Agathocleous on 15^th December 2006 and Mr Clarke was told by the Cypriot accountant that “substantial further information” was required”. Although this material had been supplied, there had been problems with it, in particular relating to TEL’s debtors and debtor balances for historic year ends.

In Mr Clarke’s witness statement he says (at para. 33) that the completed work of the Cypriot accountant would be delivered to TEL “…. No later than Friday, 2^nd February 2007, although I cannot force them to meet this deadline”. In fact that deadline was not kept. Mr Hill informed me that the Cypriot accountant will sign off his work by Monday, 19^th February 2007.

At the hearing on 14^th February 2007, I enquired of the position with regard to the UK accountant. I was told that he would need five weeks to complete the report and that the UK accountant would be available to do work on the case from 19^th February 2007. However, before starting work and keeping his time free, he would require payment of a retainer of £50,000. I told Mr Hill that for TEL to have any chance of being given relief from sanctions, it was imperative that TEL confirmed two things: (i) that the UK accountant could produce his report within five weeks of 19^th February 2007; and (ii) TEL would pay the retainer fee of £50,000. I emphasised to Mr Hill even if these matters were to be confirmed, the question of whether or not there should be relief from the sanction imposed by David Steel J’s order was still at large. I ordered that if TEL wished to confirm these matters or put before the court any other information about them, the Court and Slaughter & May must be told by midday on Friday 16 February 2007.

In accordance with the order I made, Picton Howell, the Solicitors for TEL sent a letter to Slaughter & May (Solicitors for GIL) dated 15 February 2007, with a copy to me. This letter stated that the defendant’s proposed accountancy expert in the UK had confirmed that he was in a position to commence work upon his report on Monday, 19^th February 2007. The letter continued:

The relevant provision of the CPR is CPR Pt 3.9(1). That provides:

In R.C. Residuals v Linton Fuel Oils Limited [2002] 1 WLR 2782, which was a case concerning a failure to comply with an “unless” order (which debarred the applicant from relying upon an expert’s report if it was served late), both Brooke LJ and Sir Swinton Thomas emphasised the very serious consequences of a failure to comply with an “unless” order. The “default” position is that if a party does not comply with an “unless” order, the sanction imposed for that failure will follow. Relief from that sanction will be granted only if the court, having considered all the circumstances, regards it as proper to do so. In considering whether it should grant relief from sanctions, the court is obliged to ensure that it considers each of the factors listed at (a) – (i) of CPR 3.9.(1). The Court must also “…… stand back and form a judgment in the aggregate of the relevant circumstances that have been identified in going through the list to see whether it is in accordance with the overriding objective in the CPR to lift the sanction.” (See CIBC Mellon Trust Co v Stolzenberg[2004] EWCA (Civ) 827 at para. 155 per Arden LJ.)

That is the task I must now carry out.

Under para (a) I must consider the “interests of the administration of justice”. There are two competing interests. The first is that it is in the interests of the administration of justice that orders made by the court should be obeyed by the parties. That is the point emphasised by Sir Swinton Thomas at paragraph 28 of the judgment in RC Residuals v Linton Fuel Oils Limited [2002] 1WLR 2782 to which I have already referred. However, it is also in the interests of the administration of justice that the overriding objective of the Rules is fulfilled. That objective is to “enable the court to deal with cases justly”. Cases are dealt with justly by ensuring that disputes between parties are fairly resolved in an expeditious manner, without incurring too much cost or taking up too much court time.

In the present case, it is clear to me that if the sanction imposed by David Steel J is carried out, then TEL will not be able, effectively, to pursue its counterclaim. That is because it will not be able to put before the court expert evidence which will enable the court to make a decision on what TEL’s margins would have been had it carried on with the distribution agreement if it had not been terminated by GIL. Mr Rabinowitz QC accepted that I should proceed on the assumption that the counterclaim was reasonably arguable. Therefore, the effect of the sanction would be to prevent TEL from being able to present a major plank in its arguable counterclaim. In my view that is a very serious consequence and so is a weighty factor that I must take into consideration.

Under paragraph (b) I must consider whether the application for relief has been made promptly. Mr Rabinowitz rightly accepts that the application was made promptly.

Under paragraph (c) I must consider whether the failure to comply with the “unless” order of David Steel J was intentional. Mr Rabinowitz’s submission was that TEL’s failure was intentional or, at the very least, reckless. He pointed to the facts that Mr Clarke was present when Gloster J made her order on 27^th July 2006 about the timetable for the accountancy reports. Therefore he could have been under no doubt that TEL had to get on with the work. Mr Rabinowitz also submitted that it is clear from the evidence of Mr Clarke that there was no urgency in TEL’s approach to this report during the period July – November 2006. He submitted that, even after the Cypriot accountants were appointed, there was no sense of urgency in relation to the report’s production, so that it was obvious that the timetable would not be fulfilled. He submitted that there is no satisfactory evidence to show that proper attempts were made to comply with Gloster J’s order of 8^th December 2006, or even Steel J’s “unless” order of 31^st January 2007.

There is much force in these submissions. However, I am not satisfied that the failure to comply with the timetable laid down by Gloster J or the “unless” order of Steel J was intentional. In my judgment Mr Clarke (who was responsible for organising this work) did not have a proper sense of priorities or urgency. But he also had too many other things to do, in particular, getting witness statements organised. I accept that, latterly, he has not been in the best of health, although it is clear that he has been able to do some work. Overall, the impression is of a lack of understanding as to the urgency of complying with court orders, rather than an impression of an intentional disobedience to them.

Under paragraph (d) I have to consider whether there is a good explanation for the failure to comply with the “unless” order, ie. that of Steel J dated 31 January 2007. I am not satisfied that there is a good explanation for the failure. First, I am not satisfied that money was in fact a problem. This is borne out by the fact that, since the hearing on Wednesday 14^th February, TEL has been able to deposit £50,000 in a London account to pay the UK accountant to do the necessary work, starting on 19^th February. Secondly, the failure to get on with the accountancy report during the period July – December 2006 is not fully explained in Mr Clarke’s statement.

Under paragraph (e) I have to consider the extent to which the party in default has complied with other court orders. TEL has failed to comply with court orders about the timetable for the exchange of statements of witnesses of fact. It has also failed to comply with earlier orders of the court about the exchange of expert witnesses. It also failed to comply with an order as to the provision of security for costs. In both the case of the witness statements and the provision for security of costs, TEL only complied with the orders once GIL had obtained an “unless” order. I also note that TEL’s industry report and markets report did not comply with, respectively, the provisions of the CPR and what Gloster J intended when she made the order for sequential exchange.

Under paragraph (f) I have to consider whether the failure to comply was caused by the party or his legal representative. The evidence on this aspect is not complete. That is hardly surprising because the materials that would provide such evidence must be subject to legal professional privilege. On the evidence I have seen it would appear that the failures are caused by TEL’s own failure to appreciate the importance of getting on with the work needed to produce the accountancy expert’s report.

Under paragraph (g) I have to consider whether the trial date can still be met if relief is granted. The trial is fixed to start on 17^th April 2007. Under the timetable for the exchange of experts’ reports that had been set by Gloster J’s order of 8^th December 2006, all the experts’ reports should have been exchanged by 5^th April 2007 - that is a bare two weeks before the trial was due to start. If relief from sanctions is granted, it is clear that this timetable cannot be kept. I was told by Mr Hill that the UK accountant who would prepare a report for TEL would need five weeks from 19^th February to complete his report. Subsequently, as I have already related, Piston Howell, the Solicitors acting for TEL, wrote to Slaughter & May (on 15^th February 2007). This letter confirmed that TEL’s proposed accountancy expert in the UK had confirmed that he was in a position to start work on a report on Monday, 19^th February 2007. He would be available over the following five weeks to produce the report. The letter also stated that the accountancy expert “…will do his best to provide the report in any shorter time period that the court may direct”. In my view it is highly unlikely that this report could be produced in less than four weeks. Therefore it could not be served before 19^th March 2007. The claimant would need four weeks to respond, taking up to 16^th April 2007. It would be possible for the accountancy experts to meet within one week thereafter, i.e. by 23^rd April 2007. A joint Memorandum of the accountancy experts could be produced one week after that, i.e. by 30^th April 2007. The shortest time in which supplementary reports could be produced thereafter (bearing in mind the early May bank holiday) would be by 8^th May 2007.

Mr Rabinowitz told me, and I accept, that GIL may wish to put to their witnesses of fact the assumptions about markets for cigarettes and sales within TEL’s area, before those witnesses give evidence. GIL will also wish to show the accountancy experts’ reports to their industry practice and markets’ experts. If the timetable I have outlined above were to be adopted, it is inevitable that all the necessary preparatory work could not be completed until the trial was well underway, if it started on 17^th April 2007.

Accordingly, I must conclude that if relief from sanctions is granted, then, even if the trial date is maintained, there will be inevitably interruptions in the trial timetable. The result, in my view, is that there would be no hope of completing the trial before the end of the Trinity term 2007.

Under paragraph (h) I have to consider the effect which the failure to comply with the “unless” order has had on each party. The failure of TEL to comply has had an effect on both parties. So far as GIL is concerned, the failure means that there is a disruption in its proper preparation for the trial of both the claim and TEL’s counterclaim. So far as the defendant, TEL, is concerned, there is a similar effect. At present, unless the sanction is lifted, there is the further effect that TEL will not be able to advance a major plank of its argument in support of its counterclaim.

Under paragraph (i) I have to consider the effect which the granting of relief would have on each party. This is the mirror image of the matters I have set out in the preceding paragraph. If the relief is granted, then a new timetable will have to be adopted, along the lines I have already suggested. This will put considerable pressure on GIL’s preparations for the trial. It will inevitably result in extra costs being incurred. For TEL there will also be additional costs and work in the trial preparations. However, for TEL the major advantage of the grant of relief will be that it can adduce vital evidence in support of its counterclaim.

Having considered each of the separate paragraphs under CPR 3.9(1) I have to stand back and take an overall view to see whether it is in accordance with the overriding objective in the CPR to lift the sanction. I have to say straight away that the defendants’ past behaviour is such that they really do not deserve another chance to put in the accountancy expert evidence. At the hearing on 31^st January 2007, David Steel J described TEL’s conduct as “staggering”. He also commented that he had “…never come across anything like it, even in this court”. As I have indicated above, if the relief from sanction is granted, the timetable will be such that there will be disruption to both the preparations of the trial and the early part of the trial itself.

However, despite these very powerful factors against granting relief, I have concluded that ultimately, it is in accordance with the overriding objective in the CPR to give relief from the sanction ordered for the failure to comply with the “unless” order imposed by Steel J, although on very strict terms. In reaching this conclusion I have placed particular reliance on the letter of 15^th February 2007 from Picton Howell. I take the defendants’ accountancy expert at his word when he says that the report can be produced and that the expert “…will do his best to provide the report in any shorter time period [than five weeks] that the court may direct.” I also place reliance upon the fact that the letter states that TEL is transferring £50,000 to a UK account “…to enable the expert to commence work on Monday, 19^th February”.

In these circumstances, I have concluded that TEL will be granted relief from the sanction in David Steel J’s order of 31^st January 2007. However, this relief is granted on the following conditions:

Unless the defendants’ forensic accountancy expert’s report is served on the claimants and also lodged with the court by 4pm on Monday, 19^th March 2007, the defendants will be debarred from adducing any forensic accountancy evidence at the trial of this action and counterclaim.

The defendants must pay the costs (on an indemnity basis) of the application for relief from sanctions and all the costs and occasioned by their failure to comply with the order of Steel J dated 31^st January 2007 concerning the service of the forensic accountancy report. I shall summarily assess the costs of the application but the other costs will be continuing and so must be the subject of detailed assessment in due course.

The pre-trial timetable will have to be adjusted. At present I have in mind the timetable already referred to in this judgment. However I shall hear Counsel on this if need be.

The consequence of this order is that the trial timetable will inevitably need adjustment. It is difficult to gauge what is needed at this stage. It is probable that a further PTR will be needed in order to finalise the trial timetable.

I indicated the substance of my decision and the conditions upon which the relief would be granted to the parties on Tuesday, 20^th February 2007. However, I also stated that I would, if necessary, hear submissions about the details of the pre – trial timetable after the parties had read this judgment.