THE DENTON PRINCIPLES AND SEEKING TO AVOID PAYING MONEY DUE UNDER COURT ORDERS

The application of the Denton principles was considered by Mr Justice Peter Smith in Mulugeta Guadie Mangiste -v- Endownment Fund for the Rehabilitation of Tigray [2014] EWHC 4196 (Ch) when reviewing an argument that the claimant should not pay an order for interim costs of  £200,000.

THE ISSUES

The court had made an order that the claimant pay £400,000 on account of costs which was later varied by agreement to £200,000. The claimant failed to pay.

KEY POINTS

  • A party seeking to argue that it cannot pay a sum of money must make full and frank disclosure of their assets.
  • The Denton principles do not apply to an application for an order that a party should not pay money due under a court order when the applicant has failed, at the outset, to make full and frank disclosure.
  • However if they did apply, on the facts of this case, relief would be refused.

THE JUDGMENT ON THIS ISSUE

INABILITY TO PAY

  1. As long ago as April 2013 Mr Mengiste asserted that he was unable to pay the £200,000. His production of evidence to support that has been piecemeal despite my drawing to his attention of the leading cases of Anglo Eastern Trust v Kermanshaghi [2002] EWHC 172 and Yorke Motors v Edwards [1982] 1 WLR 444 HL.
  2. This culminated in his last witness statement after the hearing in August 2014. I refer to the chronology attached to the Defendants’ further submissions made on 12th August 2014 arising out of the Claimants’ disclosure of various bank statements for the last 12 months. The details of some of the Claimants’ bank accounts were first provided by his witness statement dated 22nd May 2014. He was cross examined at the hearing before me (inter alia) on this issue and I ordered him to produce copies of all bank account statements for the last 12 months for all bank accounts which they hold or have held over that period either in their own name or jointly. I also ordered them to annotate all relevant bank statements in respect of debits and credits to be explained by a separate document to be verified by a statement of truth. Mr Mengiste’s witness statement of 6th April 2014 does not begin to comply with that order as regards explanation of the operation of the account. For example over $120,000 to MGM Services was deposited with it over the last year including $50,000 on 13th May 2014. Mr Mengiste’s explanation is simply that “they were the monies that came from clients of MGM Service LLC directly depositing their cheques in to the MGM Service LLC account or as a result of a negotiation or shipping of service documents through City Bank NA.” This simply does not explain any of it. Similarly there is a failure to provide an adequate explanation of the source of funds to MGM Services and any explanation where sums are deposited. Nowhere in any of the various witness statements has he ever provided a full statement of assets and liabilities. The Defendants correctly identified in their closings unexplained movements of significant sums into the account and significant expenditure.

CONCLUSION

  1. Where a party seeks relief from an obligation to pay a sum of money ordered by the Court it will only be acceded to at a first stage if the party establishes that he simply cannot pay having regard to his assets. His assets must be fully disclosed as set out in the above two cases extending to him demonstrating that he has tried and failed to obtain loans whether from commercial lenders or from friends or relatives. Mr Mengiste has failed to do that.
  2. He is therefore in breach of the order to pay the £200,000. He can seek relief from sanctions under CPR 3.9. This particular provision has attracted a plethora of litigation starting with the case of Mitchell v Newsgroup Newspapers [2013] EWCA Civ 15378 and culminating in  Denton  v TH White Ltd [2014] EWCA Civ 906.
  3. Those authorities do not apply to the present application for relief. I accept that the test the cases require me to consider first whether the non compliance is serious or significant. The answer to that is plainly yes. The second question is why did the default occur? The answer to that lies in the mind of Mr Mengiste. I do not know why he has not come clean as to his assets and liabilities. Third considering all the circumstances of the case is it just (including the need for litigation to be conducted efficiently and at a proportionate cost and the need to enforce compliance with rules and directions of a court order) to give him relief from sanctions. The answer to that is plainly no. As long ago as 22nd March 2013 Mr Mengiste was ordered to pay £400,000. He made his application to vary on 19th April 2013 and then agreed a variation on 7th May 2013 which was fine tuned on 10th September 2013. It was only after the time for payment of the £200,000 on 31st March 2014 that Mr Mengiste then revealed that he was not in a position to pay. I have set out above his piecemeal and inadequate disclosure of his means. I do not find that acceptable and I agree with the Defendants’ scepticism as to whether or not Mr Mengiste has come clean as to his assets and liabilities. If he had told them he could not pay the £200,000 reduced figure it is unlikely they would have agreed to the reduction. There would be no point.
  4. As I have refused to lift the stay the litigation is now closed. Mr Mengiste never appealed my judgment. This is a piece of commercial litigation and there is no reason why in the interests of proportionality and finality that the Defendants should be kept out of their money or (I suspect more likely) they are only going to recover any money with great difficulty. They are entitled to say with some justification that this is the end of the line and that Mr Mengiste should have no further indulgences. I agree with that and I therefore refuse his application to vary or stay the order for payment.

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