Before:
MR. ROBIN KNOWLES CBE QC
(Sitting as a Deputy High Court Judge)
Between:
SC DG PETROL SRL
Claimant
(1) VITOL BROKING LIMITED
(2) VITOL SA
(3) BOGDAN PAICU
Defendants
MR. DAVID SCOREY(instructed by Hill Dickinson LLP) for the Claimant
MR. CHRIS SMITH (instructed by Clyde & Co LLP) for the First and Second Defendants
MS. SOPHIE HOLCOMBE (instructed by Reed Smith LLP) for the Third Defendant
JUDGMENT
Introduction
On Friday I heard an application for relief from sanctions in the particular context of failures to comply with orders for security for costs in the Commercial Court. Ten days earlier the Court of Appeal had delivered its decision and guidance on the amended CPR 3.9(1) in Andrew Mitchell MP v News Group Newspapers Limited [2013] EWCA Civ 1537.
The claim is in tort and is said to be governed by Romanian Law. The Defendants are alleged to have combined to make a false denunciation to the Romanian authorities with the intention of inflicting harm on the business of the Claimant.
The procedural course
The claim was issued on 16 November 2012. After exchanges of statements of case, including some further information, the first Case Management Conference was held on 7 June 2013. At that hearing Eder J first dismissed an application by the Defendants for summary judgment. He went on to give directions up to and including the stage of standard disclosure, which was to be made by 15 August 2013, and inspection. Eder J ordered a second Case Management Conference to take place in early September, and provided that the appropriateness of a Mediation Order or a split trial be considered at that second Case Management Conference.
In respect of security for costs, Eder J ordered the Claimant to provide security up to and including the exchange of disclosure lists. The security was to be provided within 28 days. Liberty to apply was given in the event that the security was not provided. The amount of the security was just over £100,000 in the case of the costs of the First and Second Defendants and just under £100,000 in the case of the costs of the Third Defendant.
Security was not provided within the 28 days ordered. No application was made by the Claimant for further time before the period ordered expired, on 5 July 2013. On 9 August 2013 the First and Second Defendants issued an application for an order striking out the claim against them because security had not been provided. An application was also issued on 13 August 2013 by the First and Second Defendants seeking an extension of time for standard disclosure because security had not been provided and because they had applied to strike out the claim in consequence.
These applications were heard on the second Case Management Conference. This was held before Eder J on 4 September 2003. The Learned Judge (a) declined to strike out the claim, (b) varied his earlier order to allow the Claimant until 5pm on 17 October 2013 to provide the required security, and (c) stayed the action until further order save for the purposes of giving effect to the orders he made. Eder J ordered that in the event of the Claimant failing to comply with the order for security within the extended period allowed, “the claim shall be automatically struck out without the need for further order unless a further application has been made to the Court by the Claimant to extend time for the provision of security and a different order as to the provision of security by the Claimant has been made.”
Security was not provided within the extended period allowed. On the day of the expiry of that period, 17 October 2013, the Claimant issued the application that is before me and which seeks a further extension of time for the provision of security, alternatively an order granting relief from sanctions.
Pursuant to the orders made by Eder J the claim stands struck out. This is because although an application to extend time was issued within the extended period expiring 5pm on 17 October 2013 no different order as to the provision of security had been made in time.
On 18 October 2013 the First and Second Defendants lodged a written request that judgment be entered, in their favour and against the Claimant, dismissing the Claimant’s claim with costs. On the face of things a judgment was entered on 21 October 2013 without a hearing, by the First and Second Defendants’ invoking CPR Rule 3.5(2) (the rule entitled “Judgment without trial after striking out”). This prompted the Claimant to issue a further application on 28 October 2013 again seeking relief from sanctions but in the form of orders including an order that the judgment be set aside (“the Subsequent Application”). The skeleton argument of Mr David Scorey, Counsel for the Claimant, states that a “protective application for permission to appeal” against the judgment has also been issued.
All parties have proceeded and prepared on the basis that the Subsequent Application has not yet been listed and so is not before me. I respect that common position, but I believe all recognise that my decision on the application that is before me may have consequences for or an impact on the Subsequent Application. This is not least because of the terms of CPR 3.6(4) which applies CPR 3.9 where an application to set aside a judgment entered under CPR 3.5 is made for a reason other than that the right to enter judgment had not arisen at the time when judgment was entered.
It is now early December 2013 and the security ordered has still not been provided. In the application before me the extension of time sought at the time of issue was until 17 December 2013. At the hearing on Friday Mr Scorey informed me that an extension until May 2014 was in fact now sought as the “safest” option. The Claimant has, through Mr Scorey, apologised for its failure to comply with the orders made to date for the provision of security.
Practice does vary between courts on the question of whether there should be a stay of proceedings pending provision of security, and whether there should be a provision for the claim to be struck out without further order if security is not given as ordered. However if security is ordered and not given the Admiralty and Commercial Court Guide makes clear that in the Commercial Court the practice is ultimately to dismiss the case: see Appendix 16, paragraph 6, to the Guide. The Practice Directions supplementing CPR Part 4 include a form of Order that similarly provides for the claim to be struck out if security ordered is not given.
The realisation of assets
At the heart of the non-provision of security is a matrix of developing facts related to the realisation of assets.
The evidence, given over time and through a number of witness statements, shows the following, in summary:
The Claimant is in an insolvency procedure but a business continues.
The Claimant’s preference was to sell land in Bucharest to provide security. It found a purchaser, at a price of around Euro 500,000. The sale price (not the concept of sale) led to an objection from a minority creditor that was pursued before the Romanian Court. That challenge was resolved in favour of the Claimant but not until 17 September 2013. The creditor is now pursuing an appeal and the estimated time for hearing the appeal is late January or early February 2014. Legal opinion expects the appeal court (whose decision is final) to uphold the decision under appeal and allow the sale. In a parallel development on 5 December 2013 another, slightly higher, offer was received from a different prospective purchaser.
An alternative source of security identified by the Claimant has been the sale of five filling stations. Indeed this source was identified as the source of a larger “fighting fund” for the current proceedings recognising that the security ordered to date is only to the stage of exchange of disclosure lists, and the Claimant has its own legal costs to meet. However the sale of these stations forms, according to the Claimant, part of a Reorganisation Plan and that Plan unexpectedly failed to gain the required approval of the relevant judge in Romania, the Syndic Judge. An appeal is being pursued before the appeal court. The Claimant refers to the possibility of selling the stations notwithstanding the appeal, but acknowledges that any opposition will delay that process. It is in order to allow for these avenues to conclude that Mr Scorey seeks an extension of time to as late a date as May 2014.
The Claimant has other assets (terminals and inland depots are mentioned) and says it would be willing to sell these although adding that “the same problems will be encountered in any event” (paragraph 28 of the fifth witness statement of Mr Dan Igniska made on Thursday 5 December 2013, the day before the hearing last Friday). There are no details of any current effort to sell these other assets.
Mr Igniska, a shareholder in the Claimant, originally offered a charge over property he owns in Romania as security. This was declined by the Defendants, and Mr Igniska then also found himself unable to use the property to obtain a bank guarantee which could stand as security for costs. He has more recently offered to sell property and other assets, but has not done so. He adds “… given the current financial climate, I could not predict how long any such sale would take” (paragraph 29 of his fifth witness statement, referred to above).
Save insofar as Mr Igniska himself is a creditor as well as a shareholder, the Court has been provided with no evidence of the ability of the creditors of the Claimant to resource the required security from their own assets.
The Claimant argues that it has striven to provide security, but the problem has been that the assets involved are illiquid. It contends that it has heeded the clear message from Eder J that if there had to be a fire sale to raise security then so be it. It warns of the danger of looking at the success or lack of success of its efforts with the benefit of hindsight: developments such as the adverse decision of the Syndic Judge were unexpected. It contends that, no limitation period having expired, once its efforts to raise security have been successful it could issue fresh proceedings at a later date if the present claim remains struck out, but it urges that repeat proceedings would be wasteful in terms of efficiency and costs.
Application for relief from sanctions
CPR 3.9(1) now provides:
“On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need –
(a) for litigation to be conducted efficiently and at proportionate cost; and
(b) to enforce compliance with rules, practice directions and orders.”
In Mitchell (above) the Court of Appeal recognised that the reference to dealing with the application “justly” was “a reference back to the definition of the “overriding objective””: see [37]. However the Court of Appeal observed that the considerations singled out for specific mention at (a) and (b) in the rule “should now be regarded as of paramount importance and be given great weight”: see [36]. As the rule says, regard should be had to all the circumstances of the case, but (subject to the guidance given by the Court of Appeal) “the other circumstances should be given less weight than the two considerations which are specifically mentioned”: see [37].
The guidance given by the Court of Appeal included the following:
“It will usually be appropriate to start by considering the nature of the non-compliance with the relevant rule, practice direction or court order”: see [40]. “If the non-compliance cannot be characterised as trivial, then the burden is on the defaulting party to persuade the court to grant relief. The court will want to consider why the default occurred. If there is a good reason for it, the court will be likely to decide that relief should be granted.”: see [41].
“Later developments in the course of the litigation process are likely to be a good reason if they show that the period for compliance originally imposed was unreasonable, although the period seemed to be reasonable at the time and could not realistically have been the subject of an appeal.”: see [41]. “… [G]ood reasons are likely to arise from circumstances outside the control of the party in default”: see [43].
On an application for relief from a sanction a submission that the sanction should not have been imposed in the first place would be “misguided”: see [44]. “On an application for relief from a sanction … the starting point should be that the sanction has been properly imposed and complies with the overriding objective”: see [45]. “An application for relief from a sanction presupposes that the sanction has in principle been properly imposed. If a party wishes to contend that it was not appropriate to make the order, that should be by way of appeal or, exceptionally, by asking the court which imposed the order to vary or revoke it under CPR 3.1(7)”: see [44].
Other applications
The application before me seeks both an extension of time (under CPR 3.1(2)) and relief from sanctions (under CPR 3.9(1)). When the court is considering an application for an extension of time for appealing, the Court of Appeal has held that “it is equally appropriate to have regard to the check-list in CPR r 3.9 … in a case of any complexity”: see Sayers v Clark Walker (a firm) [2002] 1 WLR 3095 at 3100C; [2002] EWCA Civ 645 at [21]. I consider the same approach applies for the extension of time sought in the present case.
Sayers was decided before CPR 3.9 was amended, and when it contained a checklist running from (a) to (i). However it seems to me that even though the amended CPR 3.9(1) does not have a checklist, it is still to the amended rule that regard should now be had “when court is considering an application for an extension of time … in a case of any complexity”. This is, briefly, because (a) the reasoning given by Sayers (see at [21]) still holds good, (b) the amended rule still requires the court to consider all the circumstances of the case, even without listing them, and (c) it is always necessary to have regard to the overriding objective.
The application before me does not include an application under CPR 3.1(7) to vary or revoke the order of Eder J that in the event of the Claimant failing to comply with the order for security within the extended period allowed, the claim should be automatically struck out without the need for further order. Had it done so, further guidance in Mitchell would have engaged, as follows:
The circumstances in which the court might appropriately exercise its discretion to vary or revoke the order are “normally only (i) where there had been a material change of circumstances since the order was made; (ii) where the facts on which the original decision was made had been misstated; or (iii) where there had been a manifest mistake on the part of the judge in formulating the order. Moreover … the application must be made promptly.” This approach is required because “considerations of finality, the undesirability of allowing litigants to have two bites of the cherry and the need to avoid undermining the concept of appeal all require[] a principled curtailment of an otherwise apparently open discretion.”: see [44], following Tibbles v SIG plc (trading as Asphaltic Roofing Supplies) [2012] EWCA Civ 518; [2012] 1 WLR 2591.
“If the application for relief is combined with an application to vary or revoke under CPR 3.1(7) then that should be considered first and the Tibbles criteria applied”: see [45].
In the circumstances of this case, in reaching conclusions on the application that is before me I have kept in mind that the Subsequent Application remains for determination, and the potential consequences of my decision for and impact on the Subsequent Application.
The Subsequent Application that is not before me seeks, on its face, “relief from sanctions according to the principles set out in CPR 3.9 and CPR 3.5”, but is accompanied by a draft Order seeking orders that the judgment (not, it should be noted, the orders for security and for the sanction of striking out) be “revoked pursuant to CPR r. 3.1(7)”, be “set aside pursuant to CPR r.3.8 and 3.9”, be stayed, or not be enforced, It also seeks, confusingly given the application before me, a variation of the earlier orders for security “so as to provide that the Claimant has until 5pm on 13 December 2013 to provide the Defendants with the security …”. The skeleton argument of Mr Chris Smith, Counsel for the First and Second Defendants, mentions that the Claimant has said that it will be applying to amend the Subsequent Application in order to include a request for relief pursuant to CPR 3.6.
Disposition
On the application before me I have reached the conclusion that I should refuse the extension of time sought and refuse relief from the sanction ordered by Eder J, namely that the claim be struck out.
My reasoning is as follows:
The non-compliance cannot be characterised as trivial. The Claimant realistically accepts as much through Mr Scorey. The burden is therefore on the Claimant to persuade me to grant relief.
Eder J’s order required security to be provided and provided in good time. He had already allowed an extension of time, and even that had been materially exceeded.
It has been the Claimant’s choice to confine its efforts in the last 6 months to provide security to attempts to realise certain assets, rather than to respond to circumstances by extending its efforts to seeking other sources for the security. Whilst the Claimant offers explanations of why it has been frustrated in its attempts to realise assets of its choice, there is no good reason for the default.
The creditors of the Claimant stand to gain if the Claimant is successful in the proceedings. The absence of any evidence from the Claimant of the ability (or rather, any inability) of the creditors of the Claimant to resource the security from their own assets, leaves me further unpersuaded.
Although “good reasons are likely to arise from circumstances outside the control of the party in default”, and some things have happened that are outside the Claimant’s control, the Court has not been provided with anything like an adequate account of matters within its control.
Individual developments in the form of challenge to the realisation of the land and the view of the Syndic Judge have not rendered the period for compliance originally imposed unreasonable. The Court was setting a period for the provision of security for costs. The fact that it considered evidence and argument directed to the realisation of particular assets does not mean that its order was confined to the realisation of those assets. 28 days was first allowed at the first Case Management Conference. The Claimant then effectively enjoyed a further period of twice that length between the expiry of the 28 days and the hearing of the second Case Management Conference. Eder J then allowed a further six weeks. That period remains in my view reasonable.
It is most unlikely that the Claimant and its creditors, with the benefit of their experienced legal advisers, would not have given thought to how to resource the litigation, including potential security for costs or ultimate adverse costs orders, before the litigation commenced. By the date of the first Case Management Conference the application for security had been pending for a month and the litigation had been on foot for six months. This too was all time available to the Claimant.
To grant an extension of time and relief from the sanction would be to leave compliance with an order for security for costs unenforced in a case in which the provision of security was justified. The litigation would have to remain idle for a further extended period; there is little that could appropriately be done in the meantime to manage it towards trial. Already Eder J’s case management directions marshalling the case towards the point of consideration of the appropriateness of a Mediation Order or a split trial have been disabled, yet such consideration is a material part of the active case management that the Court is required to give to further the overriding objective (see CPR 1.4(1) and (2)(d) and (e)).
I have referred to the submission of the Claimant that it could issue fresh proceedings if the present claim remains struck out. If it was clear that it could, then considerations of efficiency and proportionate cost might argue in favour of relief from the sanction of a strike out in some cases. But it is not accepted by the Defendants that the Claimant could issue fresh proceedings without being met successfully by, for example, an argument of abuse of process. This point being at issue, and taking into account also the possibility that what underlies the breaches of order that have occurred is the fact that the Claimant is not serious about its claim and so might choose not to start again, I am not persuaded that considerations of efficiency and proportionate cost argue in favour of relief from the sanction of a strike out in the present case.
The application for an extension of time was not made promptly. The day it was issued was the day the claim stood struck out. The Claimant knew that that was the inevitable position when it decided to leave it until 17 October to issue the Application in circumstances where only an order and not the mere issue of an application seeking an order would prevent the sanction taking effect automatically in accordance with the order of Eder J.
Overall, taking account of all the circumstances of the case, so as to deal justly with the application, and including the need for litigation to be conducted efficiently and to enforce compliance with orders, this is not in my judgment an appropriate case in which to extend time further or grant relief from the sanction.
Further Observations
In the circumstances of the present case I cannot say that my conclusion is different from the conclusion I would have reached before CPR 3.9(1) was amended or Mitchell was decided in the Court of Appeal.
However with the benefit of seeing how the application in the present case was advanced and opposed in light of the handing down of the decision of the Court of Appeal in Mitchell, I hope it may be helpful to offer the following two brief further observations. In so doing I intend no criticism of Counsel or Solicitors, who were in fact of real assistance throughout.
On an application under CPR 3.9(1) the Court will be engaged in looking more widely than at the case in hand, as well as at the case in hand; “the new approach … seeks to have regard to a wide range of interests”: see [51]. I respectfully offer the observation that there are limits to the contribution that a party, especially a non-defaulting party, can usefully make in evidence or argument in respect of circumstances extending beyond the case in hand - for example on what is needed “to enforce compliance with rules, practice directions and orders.” This is pre-eminently an area for the judge. In Mitchell the Court of Appeal was not putting an enhanced tactical weapon into the hands of non-defaulting parties to the litigation. This is clear from the nature of the factors specified at (a) and (b) of CPR 3.9(1). It is reinforced by the concern of the Court of Appeal to reduce satellite litigation: see [60].
The second observation arises from the fact that when citing the Court of Appeal in Mitchell the parties referred me closely to the examples given by the Court of Appeal, with the Defendants (the non-defaulting parties) pressing me with the point that the case in hand was not within one or more examples. I respectfully doubt that is the right approach. The examples are there simply to illustrate the principles described by the Court of Appeal. The Court’s inquiry should be guided by the principles. My own view is that ideally the jurisdiction to extend time and grant relief from sanctions is one in which (as Lord Templeman urged in The Spiliada [1987] AC 456, HL in relation to service out of the jurisdiction) a judge would not be referred to other decisions on other facts.