Thavatheva Thevarajah v Riordan et al - Still can’t get no relief!

If anyone was still in any doubt about the far-reaching effects of the “Mitchell decision” the recent Judgment of the Court of Appeal in Thavatheva Thevarajah v (1) John Riordan (2) Eugene Burke (3) Prestige Property Devloper UK Limited (4) Barrington Burke [2014] EWCA Civ 15 provides a useful illustration.

Background

The Claim related to a dispute arising out an agreement for the Appellants’ purchase of assets from the Respondents. Prior to the agreed sale taking place, the Appellant discovered that, inter alia, the Respondents had agreed to give some of the shares to another party and the Fourth Respondent - who purported to be a de facto director of the Third Respondent - was an undischarged bankrupt disqualified from acting as a company director. It further became apparent that at least two of the Respondents had sought to make themselves Judgment-proof in other litigation. A Claim was issued by the Appellant, the chronology of which is set out below:

9 May 2013: Ex parte Freezing Order granted directing disclosure of the Respondent’s assets and liabilities (‘The First Order’)

17 May 2013: Order made providing greater particularisation of the disclosure obligation and timetabling the matter for Trial (‘The Second Order’)

21 June 2013: ‘Unless Order’ granted in light of unsatisfactory disclosure provided by the Respondents (‘The Unless Order’)

July 2013: Application issued by the Appellant for declaration that the sanction in the Unless Order had come into effect and an Order for strike-out of the Defence and Counterclaim. Cross-application made by the Respondents for Relief from Sanctions.

9 August 2013: Findings made by Hildyard J that there had been serious failures to comply with the terms of the Unless Order. Relief from Sanctions refused and an Order made debarring the Respondents from defending the Claim. (“The Debarring Order”)

September 2013: Matter listed for Trial on 3 October 2013. Disclosure is provided.

1 October 2013: Respondents file a second application for Relief from Sanction pursuant to CPR 3.9

7 October 2013: Five day Trial commences at which four of the five days are taken up by the application for Relief from Sanctions. Despite the Appellant’s submissions that the application amounted to an abuse of process, Andrew Sutcliffe QC considered that it was open to the Respondents to make a second application for Relief from Sanctions and that their subsequent compliance with the terms of the Unless Order rendered the breach de minimis. It was further considered that the Respondents were entitled to rely upon their former solicitors, who had, wrongly, informed the Respondents that they had complied with the Unless Order. The Court stated that Relief would not always be refused if disproportionate and that the new rules did not intend for minor errors to be exploited for tactical gain. Relief was granted accordingly.

The Appellant sought to appeal against the decision of Mr Andrew Sutcliffe QC and permission was subsequently granted.

Submissions and Judgment

The Appellant’s primary submission was that the Respondents’ application amounted to an abuse of process and that they could not “have a second bite of the cherry under CPR 3.9”. The Debarring Order did not properly constitute a sanction to which CPR 3.9 could apply, and therefore the appropriate procedure for challenging the Order would have been to make an application for the Order to be varied/set-aside pursuant to CPR 3.1(7). In the alternative, it was submitted that on the facts of the case it was simply not open to the Court to find that the conditions set out in CPR 3.9 had been satisfied following the decision of the Court of Appeal in Mitchell.

Lord Justice Richards gave the Judgment of the Court which can be summarised as follows:

• The correct procedure for challenging The Debarring Order was to issue an application pursuant to CPR 3.1 (7)

• “The Debarring Order had given effect to Hildyard J’s refusal of relief from sanction… Unless and until the relevant provisions of that Order were set aside by means of a variation or revocation, they were effective to debar the Respondents from defending the Claim. It was not open to the Deputy Judge simply to make an inconsistent Order granting relief under CPR 3.9”

• “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)”

• The Deputy Judge’s finding that an application for relief could be made pursuant to CPR 3.9 without needing to rely upon CPR 3.1(7), and that CPR 3.1 (7) had no more than a secondary role in relation to any necessary variation of revocation of the earlier was incorrect

• “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. 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”

• The Second Application was in substance an application under CPR 3.1(7). The criteria for such an application were set out by the Court of Appeal in Tibbles v SIG Plc [2012] 1 WLR 2591 (as approved in Mitchell) and require:  (i) there to be some material change of circumstances; (ii) the facts upon which the original decision was made had been misstated; or (iii) the Judge who made the earlier Order was misled in some way as to the correct factual position. These requirements were intended to promote finality and to avoid litigants having “two bites at the cherry”.

• The Respondents had not satisfied the requirements set out in Tibbles. The Respondents’ belated compliance with the terms of the Unless Order did not amount to a “material change of circumstances” and Andrew Sutcliffe QC had been wrong to find to the contrary.

• The Deputy Judge’s general approach to the application of CPR 3.9 was “wrong in principle and lacked the “robustness called for by the guidance…given by this Court in Mitchell”. The Deputy Judge “gave insufficient consideration to the need … to enforce compliance with rules, practice directions and Order, considerations which “should not be regarded as of paramount importance and be given great weight”

• The Deputy Judge was wrong to regard the Respondents’ delay in making the application as of no significance.

• “The Deputy Judge paid insufficient attention to the fact that the second application had not been made promptly but came almost two months after Hildyard J had refused relief and just two days before the Trial was due to start. The importance of promptness in relation to applications … was emphasised in Mitchell in relation to applications under CPR 3.9 … and the Judgment of this Court in Durrant v Chief Constable of Avon & Somerset Constbulary [2013] EWCA Civ 1624 … placed particular weight on the failure to make a prompt application under CPR 3.9 in concluding that relief from sanction should be refused.”

• The Respondents’ application for relief from sanctions was rejected accordingly.

Analysis

It is clear from the Judgment that the Courts will be very reluctant to allow a “second bite at the cherry”; any attempt at a second application for relief would likely be construed as an application pursuant to CPR 3.1 (7) and the Applicant would be required to satisfy the onerous requirements as set out in Tibbles. It would of course remain open to the Applicant to seek to appeal the Order, but what is clear is that an Order does not generally constitute a sanction to which relief can be sought under CPR 3.9.

The Court once again emphasized the robust approach required post-Mitchell and the importance of compliance with Rules, Practice Directions and Order, which is now of paramount importance and to be given great weight. Whilst the Respondents had remedied their breach by complying with their obligations under the Unless Order, this did not amount to a material change of circumstances that would enable relief to be granted. Further, the delay in both complying with the Order, and issuing the Second Application for relief, fell foul of the post-Mitchell requirement for promptness.

This Judgment provides yet further confirmation that the parties are under a strict obligation to comply with all Rules, Practice Directions and Orders – failure to do so, whether as a result of inefficiency or otherwise, will no longer be accepted, and defaulting parties will bear the consequences.