JUDGMENT
Thevarajah (Respondent) v Riordan and others
(Appellants)
before
Lord Neuberger, President
Lord Mance
Lord Clarke
Lord Sumption
Lord Hodge
JUDGMENT GIVEN ON
16 December 2015
Heard on 17 November 2015
Appellants Respondent
Paul Letman Stephen Smith QC
Miranda Butler James Bailey
(Instructed by YVA
Solicitors LLP
)
(Instructed by Olephant
Solicitors
)
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LORD NEUBERGER: (with whom Lord Mance, Lord Clarke, Lord
Sumption and Lord Hodge agree)
1. This is an appeal against a decision of the Court of Appeal allowing the
respondent’s appeal from a decision of Mr Andrew Sutcliffe QC, sitting as a Deputy
High Court Judge, who granted the appellants relief against a debarring order, in
circumstances where such relief had already been refused by another judge.
The background facts and proceedings
2. The respondent had entered into an agreement with the appellants, John
Riordan and Eugene and Barrington Burke, to buy the shares which they owned in
Prestige Property Develper UK Ltd. Having paid £1.572m to the appellants, the
respondent sought specific performance of the agreement and associated relief, in
proceedings issued in March 2013. After obtaining an initial order without notice a
week earlier, the respondent obtained a freezing order (“the freezing order”) from
Arnold J on 17 May 2013 at a hearing attended by the appellants and their legal
representatives. This order required the appellants to provide by 24 May 2013
information and documents relating to all their assets, including details of all of their
bank accounts and bank statements going back to 1 October 2010. The freezing
order also stated that such assets extended to those held by Prestige Properties Ltd
(“the Company”). Arnold J also directed that the proceedings be heard during
October 2013.
3. The appellants did not afford the disclosure required by the freezing order by
24 May 2013, and the respondent gave them the opportunity to comply out of time.
However, the appellants still failed to comply, although they gave some further
disclosure. The respondent issued an application for an “unless” order, which came
before Henderson J. On 21 June 2013, he gave a judgment in which he held that the
appellants’ disclosure was “in many respects seriously inadequate” – [2013] EWHC
3356 (Ch). He also described the failure to disclose “full bank statements for the
period of three years in the names of the relevant defendants” as a “particularly
glaring omission”. Accordingly, he made an “unless” order which required the
appellants to disclose certain identified assets that they had failed to disclose, and
which also provided that, in default of compliance by 1 July 2013, the appellants
would be debarred from defending the claim.
4. Although the appellants gave some further disclosure, they failed to comply
fully with the “unless” order. On 9 August 2013, Hildyard J heard (i) the
respondent’s application for an order debarring the appellants from defending as
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they had failed to comply with the “unless” order, and (ii) the appellants’ application
for (a) a determination that they had complied with the “unless” order, or, if they
had not (b) an order for relief from sanctions under CPR 3.9 (“the first relief
application”). The appellants’ application was partly based on the contention that
they had given further disclosure on 31 July 2013. Hildyard J made the debarring
order sought by the respondent and dismissed the appellants’ application for relief
from sanctions – [2013] EWHC 3464 (Ch). There was no appeal against that order.
5. In his judgment, Hildyard J recorded the appellants’ contention “that their
failures … were de minimis [or] the product of matters beyond their control”. He did
not accept that contention, and described “the position” as “less than satisfactory”.
He rejected the argument that the appellants’ failure to produce certain charges had
been caused by the refusal of the Bank of Cyprus to cooperate, and also held that
there had been “an obvious failure” to give disclosure of certain other documents.
He observed that it was “most difficult to reach any other conclusion than that there
have been substantial failures to comply with the ‘unless’ order”. He then referred
to the fact that just one page of a bank account at HSBC in the name of the Company
had been produced, and described this as “a very unsettling turn of events”, and “a
further illustration of the reasons for my conclusion that there has been a material
failure, which cannot be dismissed as de minimis”. He then carefully addressed the
question whether he should grant the appellants relief under CPR 3.9 from the
sanction of the debarring order. Having considered the principles as laid down in
earlier cases, he explained that he felt “constrained to refuse any relief from
sanctions”, while “personally regret[ting] the need for such a step”.
6. The trial of the action was due to start on 3 October 2013, with a time estimate
of five days (which apparently was not altered following Hildyard J’s order). Having
instructed fresh solicitors, the appellants issued an application on 2 October 2013
for relief from sanctions (“the second relief application”), supported by a lengthy
affidavit, which provided, at least according to the appellants, full disclosure as
required by the freezing order. The trial and the second relief application were
adjourned to 7 October 2013, when they came on before Mr Sutcliffe. He heard the
second relief application, over the next four days, and granted the appellants relief
from sanctions, adjourned the trial, and fixed a new trial window in January 2014 –
[2013] EWHC 3179 (Ch).
7. In his judgment, the Deputy Judge began by summarising the substantive
facts and issues and the procedural history. He mentioned that he did not have
approved transcripts of the ex tempore judgments of Henderson or Hildyard JJ, but
quoted from informal notes or reported summaries of their respective judgments.
The Deputy Judge then summarised the appellants’ case in support of the second
relief application, namely that they had tried hard to comply with the requirements
of the freezing and “unless” orders, that their failure to comply was due to the
extensive nature of the disclosure required, that any such failure had been relatively
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slight and some of it due to their former solicitors, that any such failure had now
been put right, and that to maintain the debarring order would, in all the
circumstances, be disproportionate. He then referred to the respondent’s case in
reply, namely that the second relief application was an abuse of process, and that, in
any event, the debarring order ought to be maintained on the merits – not least
because the appellants had still not given the requisite disclosure in full.
8. The Deputy Judge then addressed the question of how he should resolve the
appellants’ second relief application. He began by mentioning the court’s power to
grant relief from sanctions, contained in CPR 3.9, and the guidance as to its exercise
in certain judicial decisions. He then referred to the freezing and “unless” orders,
and turned to the respondent’s contention that the appellants remained in breach of
the “unless” order in that they had not disclosed bank statements in respect of the
Company’s account at HSBC. Because other bank statements had been provided for
the Company, the Deputy Judge concluded that “the omission of this evidence does
not amount to a breach of the ‘unless’ order and even if it did, in the context of the
disclosure provided as a whole, it is de minimis and would not justify a finding that
the [appellants] had failed to comply”. He also accepted that the appellants’ former
solicitors were in part to blame for any failure on the appellants’ part to comply with
the freezing and “unless” orders. After mentioning one or two other factors, he held
that the appellants were in all the circumstances entitled to take a full part in the
trial, and that the debarring order should be discharged. He added that, if, as the
respondent contended relying on CPR 3.1(7), it was necessary for the appellants to
show a change of circumstances since the decision of Hildyard J, in order to justify
a second application for relief from sanctions, the fact that they had now
substantially complied with their disclosure obligations was a sufficient change.
9. The respondent appealed against the decision of the Deputy Judge to grant
the appellants relief from sanctions, and, for reasons set out in a judgment of the
court given by Richards LJ (sitting with Aikens and Davis LJJ), the Court of Appeal
allowed the appeal and restored the debarring order imposed by Hildyard J – [2014]
CP Rep 19. The essence of the Court of Appeal’s reasoning was that, as Hildyard J
had already rejected the appellants’ first relief application, CPR 3.1(7) applied and
the Deputy Judge could not properly have acceded to the second relief application
unless there had been “a material change of circumstances” since Hildyard J’s
decision, and there had been no such change.
10. To complete the history, the appellants were granted permission to appeal
against this decision to this court. Meanwhile, the trial duly took place on 21 March
2014 before Mr David Donaldson QC, whose decision was reversed on 4 February
2015 by the Court of Appeal, who ordered, inter alia, that the appellants pay just
over £2.205m to the respondent – see [2014] EWHC 725 (Ch) and [2015] EWCA
Civ 41.
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Discussion
11. I have summarised the effect of the judgment given by Richards LJ in very
brief terms because I agree with it, and what follows is not intended to differ from
its essential reasoning. Indeed, I had wondered whether simply to say that this appeal
should be dismissed for the reasons given by the Court of Appeal at [2015] EWCA
Civ 41, paras 23-32. However, having given permission to the appellants to appeal
to this Court, we may leave them with an understandable feeling of grievance if we
do not explain to them in our own words why their appeal is being dismissed.
12. The effect of Henderson J’s “unless” order, coupled with Hildyard J’s finding
that the appellants had failed to comply with the disclosure requirements in that
order, was that, unless the appellants were granted relief from sanctions under CPR
3.9, they would be debarred from defending the claim. CPR3.9(1) 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.”
13. The basis upon which a court should approach an application for relief from
sanctions under CPR 3.9 has been authoritatively considered by the Court of Appeal
in Mitchell v News Group Newspapers Ltd (Practice Note) [2014] 1 WLR 795 and
Denton v TH White Ltd (De Laval Ltd, Part 20 defendant) [2014] 1 WLR 3926.
Although Hildyard J gave his decision refusing relief from sanctions before those
two decisions of the Court of Appeal, his reasoning and decision reflected the
guidance and approach set out in them. Quite rightly, there has been no suggestion
that we should reconsider what was said in those decisions.
14. As explained above, the Court of Appeal in this case held that the Deputy
Judge should not have considered the second relief application on its merits, as it
failed to get off the ground, because CPR 3.1(7) applied and the appellants could
not show that there had been a material change of circumstances since the hearing
of the first relief application before Hildyard J. Mr Letman, who appears for the
appellants, contends that the Court of Appeal erred in two respects, namely (i) in
holding that the appellants needed to establish a material change in circumstances,
or, in the alternative, (ii) in holding that they had failed to establish such a material
change.
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15. So far as the first point is concerned, the appellants raise rather an arid point,
namely whether CPR 3.1(7) applied to the second relief application. CPR 3.1(7)
provides that “[a] power of the court under these Rules to make an order includes a
power to vary or revoke the order”. The reason that it is said to be significant whether
CPR 3.1(7) should have been taken into account by the Deputy Judge is because, as
Lord Dyson MR giving the judgment of the court put it in Mitchell at para 44, citing
the judgment of Rix LJ in Tibbles v SIG plc (trading as Asphaltic Roofing Supplies)
[2012] 1 WLR 2591, para 39(ii):
“The discretion [exercisable under CPR 3.1(7)] might be
appropriately exercised 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, as the court emphasised, the application must be
made promptly. This reasoning has equal validity in the context
of an application under CPR 3.9.”
Lord Dyson went on to explain in para 45 that, “on an application for relief from a
sanction, therefore, the starting point should be that the sanction has been properly
imposed and complies with the overriding objective”. Nothing said in Denton,
where the Court of Appeal clarified some of the reasoning in Mitchell, undermines
these observations.
16. It is worth mentioning that none of this was revolutionary when it was
expounded in Mitchell. In Collier v Williams [2006] 1 WLR 1945, para 40, Dyson
LJ giving the judgment of the Court of Appeal had approved an observation of
Patten J in Lloyds Investment (Scandinavia) Ltd v Christen Ager-Hanssen [2003]
EWHC 1740 (Ch) at para 7 to this effect:
“Although this is not intended to be an exhaustive definition of
the circumstances in which the power under CPR 3.1(7) is
exercisable, it seems to me that, for the High Court to revisit
one of its earlier orders, the applicant must either show some
material change of circumstances or that the judge who made
the earlier order was misled in some way, whether innocently
or otherwise, as to the correct factual position before him.”
17. In my view, the Court of Appeal in this case rightly held that CPR 3.1(7) did
apply to the second relief application. As a matter of ordinary language, the Deputy
Judge was being asked to “vary or revoke” the order made by Hildyard J, who had
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refused relief from sanctions and thereby confirmed the debarring order, which the
Deputy Judge was being asked, in effect, to set aside.
18. However, even if that were not right, it appears to me that, as a matter of
ordinary principle, when a court has made an interlocutory order, it is not normally
open to a party subsequently to ask for relief which effectively requires that order to
be varied or rescinded, save if there has been a material change in circumstances
since the order was made. As was observed by Buckley LJ in Chanel Ltd v FW
Woolworth & Co Ltd [1981] 1 WLR 485, 492-493:
“Even in interlocutory matters a party cannot fight over again
a battle which has already been fought unless there has been
some significant change of circumstances, or the party has
become aware of facts which he could not reasonably have
known, or found out, in time for the first encounter.”
Accordingly, even if CPR 3.1(7) did not apply to the second relief application, it
appears clear that the appellants would have faced the same hurdle before the Deputy
Judge. That conclusion also derives support from the last sentence in para 44 in
Mitchell, quoted in para 15 above.
19. There was no question of the facts having been misstated by Hildyard J or of
manifest mistake in formulating his order. Accordingly, unless (perhaps) they could
show that this was not a “normal” case, the appellants had to establish a material
change in circumstances since the hearing before Hildyard J before the Deputy
Judge could properly consider the second relief application on its merits. Mr Letman
was unable to point to any factors which rendered this case relevantly not normal.
Accordingly, I reject the appellants’ first point.
20. That brings me to the second point made by the appellants, namely that the
Court of Appeal were wrong to hold that their subsequent alleged compliance with
the “unless” order was not a material change of circumstances. In my view, that
point must also be rejected, and that is for two reasons.
21. The first reason is that, where a party is subject to a debarring order for failing
to comply with an “unless” order to do something within a specified period and
relief from sanctions is refused at a time when he is still in default, the mere fact that
he then complies with the “unless” order (albeit late) cannot amount to a material
change of circumstances entitling him to make a second application for relief from
sanctions. By refusing the party’s first application for relief from sanctions, the court
would have effectively been saying that it was now too late for that party to comply
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with the “unless” order and obtain relief from sanctions. So, if the court on a second
application for relief from sanctions granted the relief sought simply because the
“unless” order had been complied with late, its reasoning would ex hypothesi be
inconsistent with the reasoning of the court which heard and determined the first
application for relief.
22. Of course, that does not mean that late compliance, subsequent to a first
unsuccessful application for relief from sanctions, cannot give rise to a successful
second application for relief from sanctions. If, say, the “unless” order required a
person or company to pay a sum of money, and the court subsequently refused relief
from sanctions when the money remained unpaid, the payment of the money
thereafter might be capable of constituting a material change of circumstances,
provided that it was accompanied by other facts. For instance, if the late payment
was explained by the individual having inherited a sum of money subsequent to the
hearing of the first application which enabled him to pay; or if the company had
gone into liquidation since the hearing of the first application and, unlike the
directors, the liquidator was now able to raise money. These are merely possible
examples, and I am far from saying that such events would always constitute a
material change of circumstances, or, even if they did, that they would justify a
second application for relief from sanctions.
23. In this case, such subsequent compliance with the “unless” order which did
occur after the hearing before Hildyard J was not accompanied by any explanation
which could possibly have justified a court concluding that there had been a material
change of circumstances since that hearing. Accordingly, the Deputy Judge simply
had no grounds to justify his entertaining the second relief application on its merits.
24. Quite apart from this, it seems to me that the Deputy Judge was not entitled
to hold that the appellants had complied with the terms of the “unless” order, or that
any breach of that order was de minimis, as he did. Hildyard J had found that the
appellants should have disclosed the HSBC bank statements for the Company and
that their failure to do so “cannot be dismissed as de minimis”. In those
circumstances, it was simply inappropriate for the Deputy Judge to reach a different
conclusion on essentially the same facts. (Indeed, that is a very good illustration of
why it would only have been open to the Deputy Judge to consider the second relief
application on its merits if there had been a material change of circumstances. He
could not simply revisit the same issues as had already been considered by another
judge and reach a different conclusion.)
25. Further, it was not appropriate for the Deputy Judge to conclude that the
appellants’ former solicitors were partly to blame for any failure on their part to
comply with the “unless” order. The contention that the appellants’ former solicitors
were responsible for some of the breaches of the “unless” order was based on very
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slight evidence indeed – a mere statement to that effect in a witness statement and
two emails each of three or four lines, one of which was plainly incomplete. That
was quite insufficient to justify the finding that the former solicitors were to blame.
26. The Court of Appeal also considered that the appellants should have been in
difficulties on the second relief application because of the delay. Given that they
made that application eight weeks after Hildyard J made his order and one day
before the trial was due to begin, without any satisfactory explanation for the delay
or last minute nature of the application (except for a change of solicitors), I see
considerable force in that view.
27. It is fair to the Deputy Judge to mention that he did not have approved
transcripts of the judgments of Henderson J or Hildyard J, but he had a pretty clear
note and summary of the latter judgment. It was incumbent on the appellants, who
made the second relief application, to have obtained approved transcripts of those
judgments: it was certainly no fault of the respondent that they were not available.
It is also fair to the Deputy Judge to add that Mitchell and Denton were decided after
he determined the second relief application. However, he was referred to Collier,
which should have led him to the conclusion which the Court of Appeal reached.
28. It should perhaps also be added that the respondent had adduced evidence
before us, which had not been available to the Court of Appeal or the Deputy Judge,
to support a contention that, if we had disagreed with the Court of Appeal, we should
proceed to determine the second relief application on its merits and dismiss it. This
evidence suggested that the appellants’ failure to produce the Company’s bank
accounts was indeed a serious failure, but it is unnecessary, indeed it would be
inappropriate, to consider that aspect further.
Conclusion
29. Accordingly, I would dismiss this appeal.
