Thavatheva Thevarajah (Appellant/Claimant) v John Riordan and Others (Respondents/Defendants)

This is the judgment of the court.

1. This is an appeal against an order dated 11 October 2013 of Mr Andrew Sutcliffe QC, sitting as a deputy High Court Judge in the Chancery Division, by which he allowed the application of the first, second and fourth respondents (to whom, for the sake of simplicity, we will refer collectively as “the respondents”) for relief from sanction under CPR 3.9. The relief sought had previously been refused by Hildyard J, so this was the respondents' second application for the same relief. There are several troubling features about the deputy judge's approach, but at the hearing of the appeal we heard submissions first on whether he was right to entertain the application at all. Having considered those submissions, we announced our decision to allow the appeal, for reasons to be given in writing at a later date. These are the reasons for our decision.

The relevant facts

2. The dispute between the parties relates to the terms of an agreement for the appellant's purchase of assets from the respondents. One of those assets was a public house owned by the third respondent (“Prestige”). It is common ground that as part of the agreement the appellant was to acquire the entire share capital of Prestige, but the parties are at odds as to almost every other aspect of the agreement. The appellant contends that he was to take control of Prestige and the public house pending completion, and that he paid the respondents more than £1.5 million (as was accepted) and also expended a further £600,000 in improving the property and running the business, but the respondents failed to complete the sale. He says that he then discovered that prior to agreeing to sell the shares in Prestige to him, the respondents had agreed to give some of the same shares to another person; that at least the second and fourth respondents had sought to make themselves judgment-proof in other litigation; and that the fourth respondent, who appeared to be a de facto director of Prestige, was an undischarged bankrupt who had been disqualified from acting as a company director. Those various matters precipitated the litigation.

3. On 9 May 2013 the appellant obtained an ex parte freezing injunction (“the first order”) from Arnold J and issued a Part 7 claim. The first order included a requirement that the respondents provide disclosure of assets and liabilities. When the matter came back before Arnold J at an inter partes hearing on 17 May the judge made a further order (“the second order”) which contained greater particularisation of the disclosure obligation. He also made a separate order giving directions for a speedy trial, in a window running from 1 to 31 October 2013.

4. The appellant, dissatisfied with the extent of disclosure by the respondents pursuant to the first and second orders, issued an application on 10 June 2013 for an “unless” order. A hearing of that application before Henderson J fixed for 14 June had to be adjourned because of late additional disclosure. At the adjourned hearing, on 21 June, Henderson J found that the respondents' disclosure remained inadequate. He made an order (“the unless order”) which provided in paragraph 1 that:

“Without prejudice to the effect of, and the obligations imposed by, the First and Second Orders generally, unless each of the First, Second and Fourth Respondents do provide the information particularised immediately below by 4pm on 1 ^stJuly 2013 then the First, Second and Fourth Respondents shall be debarred from defending the Applicants' claim and any Defence that they might have filed shall be struck out.

1.1 Details of any charges or similar such encumbrances of any real property (as defined in paragraph 8(2)(a) of the Second Order), including particulars of the specific interest that is so charged, together with the provision of bank or similar such statements covering the period 1 ^st October 2010 until the date of this order in respect of any and all accounts of any borrowing secured against such real property.

1.2 Details of all of the said Respondents' bank accounts, whether or not they are in their own name and whether they are solely or jointly owned and whether the said Respondents and each of them are interested in them legally, beneficially or otherwise ….

1.3 Sub-paragraphs 1.1 and 1.2 above apply also to those assets, liabilities, and bank or other accounts and statements in respect of

1.3.1. Prestige Properties Limited;

…

1.4 Full particulars as to how the said Respondents are funding the present litigation ….”

The unless order also recorded an undertaking by the respondents to the court to cause letters substantially in the form of letters produced to the court to be sent to the Bank of Cyprus and five other banks.

5. The respondents provided further documentary disclosure on 28 June and a further affidavit on 1 July, but the appellant maintained that there had been a failure to comply with the unless order. He issued an application seeking a declaration that the sanction in the unless order had come into effect and an order striking out the defence and counterclaim. The respondents cross-applied for relief from sanction pursuant to CPR 3.9. The applications came before Hildyard J on 9 August.

6. In his judgment on those applications Hildyard J said that “the defendants are constrained to accept that in a number of respects the order has not been complied with” (para 3). He went on to cite instances of non-compliance. The first concerned the charge documentation: there had been a failure to provide the charges identified in correspondence, the excuse for which (that the Bank of Cyprus had refused to co-operate in this regard) was not accepted by the judge. A second instance concerned the requirement to disclose documents relating to the funding of the litigation: there had been an obvious failure to provide the details which were required in order that the claimant and the court could be satisfied that the funds were coming out of a disclosed source and were being used only for purposes not inconsistent with the general tenor of the freezing orders. A third instance concerned a late entry in the documentation, in the form of a statement of an account at HSBC “which, in the evidence, the defendants have suggested was not an account in the name of any company named in the relevant paragraph of Mr Justice Henderson's order but which, it transpires, without any doubt or equivocation, is a Prestige Properties Limited account” (para 12). The judge described this revelation as “a very unsettling turn of events which, of course, impacts also on the question which I have to address under CPR 3.9” (para 13). A fourth instance to which the judge referred was a material failure to explain the fact that although the approved letters sent off to financial institutions specified that any documents should be returned not to the defendants but to the claimant's solicitors, they were returned instead to the defendants. Taking into account the four instances he had indicated, the judge concluded that serious failures to comply with the unless order had been established.

7. He then turned to the application for relief from sanction. Drawing on Tarn Insurance Services Limited v Kirby & Others [2009] EWCA Civ 19, he said that the court “when asked to give relief from sanctions in the context of an unless order and, in particular, in an unless order which has been made to enforce and police compliance with the provisions of a freezing order, should adopt a rigorous approach” (para 21). He referred to the areas where there had been a failure to take all reasonable steps and to the concerns he had felt in consequence of the late revelation about the position with HSBC. He continued (at para 29):

“When I add all this in the mix and test it against the prescription which CPR 3.9, in its newest form, conveys, namely that the court must be very cautious before granting what, in effect, is a dispensation from an order previously made, and when I take into account the factual context more generally, which includes the fact that the unless order was made after five previous applications, and where I also take into account the somewhat remarkable instances where the defendants have not provided the evidence that one would have expected, to explain themselves, I feel constrained to refuse any relief from the sanctions.”

8. Accordingly, the judge made an order (“the debarring order”) declaring that “the First, Second and Fourth Defendants have failed to comply with the Unless Order and are debarred from defending the First Claimant's claim”, and ordering that their defence and counterclaim be struck out. He also ordered that the determination of the remaining heads of relief claimed by the appellant be adjourned for a disposal hearing to take place in the current trial window or at such earlier time as the court might list it on the appellant's application.

9. There was no appeal against the debarring...