Consult II s.r.o. (formerly named DFRG Invest II s.r.o) v Shire Warwick Lewis Capital Ltd
| Jurisdiction | England & Wales |
| Judge | Andrew Henshaw,Mr Andrew Henshaw |
| Judgment Date | 15 February 2019 |
| Neutral Citation | [2019] EWHC 286 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2018-000289 |
| Date | 15 February 2019 |
[2019] EWHC 286 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Andrew Henshaw QC (sitting as a Judge of the High Court)
Case No: CL-2018-000289
Andrew Fletcher QC (instructed by Bryan Cave Leighton Paisner) for the Third and Fourth Claimants
Mr Perry Lewis (acting in person) for the First to Fourth Defendants
The First and Second Claimants did not appear and were not represented
Hearing date: 1 February 2019
Approved Judgment
Andrew Henshaw QC
Mr Andrew Henshaw QC:
| (A) INTRODUCTION | 2 |
| (B) BACKGROUND TO THE PROCEEDINGS | 3 |
| (C) PROCEDURAL BACKGROUND | 3 |
| (D) APPLICABLE PRINCIPLES | 4 |
| (1) Stage one: seriousness and significance of failure to comply | 7 |
| (2) Stage two: why the breach occurred | 8 |
| (a) The Strom transaction | 10 |
| (b) The PTC Position | 13 |
| (c) Funds en route as at 30 November 2018 | 15 |
| (d) Further source of third party funding | 15 |
| (e) Conclusion on Stage two | 15 |
| (3) Stage three: evaluation of all the circumstances | 15 |
| (E) OVERALL CONCLUSION | 17 |
(A) INTRODUCTION
The Defendants apply, pursuant to an application notice dated 30 November 2018, for an order pursuant to CPR 3.9 for relief from the sanctions imposed by an order of Moulder J, dated 26 October 2018 and sealed on 29 October 2018, made by consent at a time when the Defendants were legally represented.
The Defendants' application is supported by the sixth witness statement of the Third Defendant, Mr Pachtinger. The Defendants are no longer legally represented, and were represented at the hearing by the Second Defendant, Mr Lewis. Mr Lewis is a chartered accountant, and told me that he is an FCA-approved individual with a diploma in corporate finance.
Moulder J's order included at § 1 provision that unless, by 4pm on the date 14 days after the date of order, costs of £102,700 ordered by Jacobs J on 17 August 2018 to be paid had been paid in full to the Claimants' solicitors, then (a) the Defendants would be debarred from defending these proceedings, any defence served prior to that date would be struck out, and the Claimants would have permission to obtain judgment in default of defence pursuant to CPR 12.4; (b) various sums held by the Claimants' solicitors by way of security pursuant to previous orders would be discharged from all restriction imposed by those provisions; and (c) the Claimants' solicitors would be released from their undertakings in respect of those sums as recorded in previous orders.
For the reasons set out below, I have come to the conclusion that relief from sanctions should not be granted, and that the sanctions imposed by the order of Moulder J should take effect.
(B) BACKGROUND TO THE PROCEEDINGS
The Third and Fourth Claimants, who are the active claimants in the proceedings, claim damages of €4,448,416.24 against the First to Third Defendants, jointly and severally, for fraudulent misrepresentation, conspiracy, and breach of contract.
The claim arises from currency trading transactions. Briefly, it is alleged that between September 2016 and March 2017 the Claimants paid sums in respect of margin totalling more than €2.3 million to the First Defendant for the purpose of implementing (by way of a joint venture) a Euro/Czech Koruna currency trading strategy, with profits to be split 75/25 between the Claimants and the First Defendant. The Claimants say that the strategy was successful, and that as at 4 October 2017 the sum of €4,448,416.24 was admittedly due from the First Defendant to the Claimants pursuant to the joint venture.
It is alleged that the First Defendant did not pay any part of that sum to the Claimants, because the Claimants were persuaded by the Third Defendant, Mr Pachtinger (on behalf of the First Defendant and with the approval of the Second Defendant, Mr Lewis), to enter into debt for equity agreements by which the Claimants were instead to receive shares in the First Defendant's holding company, which is the Fourth Defendant.
The Claimants' pleaded claims include claims for rescission of the joint venture agreement and the debt for equity agreements, return of the margin they paid, and damages for conspiracy to defraud and for fraudulent misrepresentation. The Claimants' claims are put at €4,448,416.24.
(C) PROCEDURAL BACKGROUND
On 30 April 2018 Popplewell J granted a freezing injunction against the First to Third Defendants, which was varied by Picken J on 4 May 2018 and by Mr Christopher Hancock QC (sitting as a Deputy Judge) on 11 May 2018.
By an application issued on 1 August 2018, the Defendants applied to discharge or set aside the freezing injunction, leading to a hearing before Jacobs J on 15–17 August 2018 at which the Claimants were represented by leading counsel and the Defendants by leading and junior counsel. The application was originally made on the grounds of both lack of arguable case and material non-disclosure, but due to timing constraints the hearing and Jacobs J's judgment dealt only with the issue of whether the Claimants had a good arguable case.
Jacobs J dismissed the application based on lack of a good arguable case, concluding in a judgment delivered on 17 August 2018 that the Claimants' case at least met the threshold of good arguable case overall and, specifically, in relation to misrepresentation, falsity, fraud, causation, damages and rescission.
Jacobs J ordered the Defendants to pay £100,000 in respect of the Claimants' costs of that application, and a further £2,700 (by consent) in respect of an application the Defendants had made for security for costs, making a total of £102,700, to be paid within 21 days (the “ Jacobs Costs Order”).
On 26 October 2018, by consent, Moulder J made orders including the ‘unless’ order referred to in §§ 1 and 3 above (“ the Unless Order”).
The Defendants failed to make any payment in respect of the Jacobs Costs Order by the deadline set out in the Unless Order, 9 November 2018, with the result that the sanctions set out in the Unless Order came into effect subject only to the outcome of the Defendants' present application.
On 12 November 2018 the Claimants filed a request for judgment in default of Defence pursuant to the Unless Order (“ the Judgment Application”).
On 16 November 2018 the Third and Fourth Claimants applied to Teare J to vary the freezing injunction in certain respects in the light of the deadline set out in the Unless Order having passed. Teare J varied the injunction in the respects set out in paragraphs 2–5 of his order (“ the Teare Order”). The broad effect of these variations was that if the Defendants did not apply for relief against sanctions by 4pm on 30 November 2018, then (a) the freezing order would continue until the conclusion of the proceedings or (if judgment were entered pursuant to the Judgment Application) until the judgment were satisfied; (b) the limit stated in the freezing injunction would be reduced to the extent of any part payments made by the Defendants; and (c) the First and Second Claimants would be released from their undertakings in damages, and certain other variations would be made to the freezing injunction.
Teare J also directed in his order that any application by the Defendants for relief “be supported by a witness statement which is to include such documents as the Defendants are able to supply copies of in relation to that application”, and made this clear at the hearing (at which both Mr Lewis appeared and Mr Pachtinger was also present).
(D) APPLICABLE PRINCIPLES
CPR rule 3.9 provides that:
“(1) 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.
(2) An application for relief must be supported by evidence.”
In Denton v TH White Ltd [2014] EWCA Civ 906 at § 24 the Court of Appeal stated:
“… A judge should address an application for relief from sanctions in three stages.
The first stage is to identify and assess the seriousness and significance of the “failure to comply with any rule, practice direction or court order” which engages rule 3.9(1). If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages.
The second stage is to consider why the default occurred.
The third stage is to evaluate “ all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b)]”….”
(paragraph breaks interpolated)
“Factors (a) and (b)” are those referred to at (a) and (b) of CPR 3.9(1), i.e.:
“the need— (a) for litigation to be conducted efficiently and at proportionate cost; and (b) to enforce compliance with rules, practice directions and orders”.
As to the application of these principles to litigants acting in person:
i) The Court of Appeal in Denton said at § 40:
“Litigation cannot be conducted efficiently and at proportionate cost without (a) fostering a culture of compliance with rules, practice directions and court orders, and (b) co-operation between the parties and their lawyers. This applies as much to litigation undertaken by litigants in person as it does to...
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Inadequate Explanation, No Relief: A Reminder Of The Potential Tough Consequences Of Failing To Comply With A Court Order
...order for the payment of costs arising from a failed interlocutory application: Consult II SRO v Shire Warwick Lewis Capital Ltd [2019] EWHC 286 (Comm). In refusing to provide relief from sanctions, the court has provided a timely reminder of the need for a party seeking relief to provide d......