SETTING ASIDE AN EARLIER ORDER: A WIDE AND UNFETTERED DISCRETION?

In Cole -v- Howlett [2015] EWHC 1697 (Ch) Mr Justice Peter Smith conducted detailed consideration of the power, and discretion, to review and set aside orders already made.  The judge agreed to set aside his earlier order striking out the action and to allow the matter to proceed to trial.

THE CASE

In a hearing on the 22nd April 2015 the judge held that an action by the claimant was an abuse of process because there was no evidence that there was an agreement with a Trustee in Bankruptcy to assign the cause of action which was the subject matter of the action. the order stated:-

IT IS DETERMINED THAT:

1. The Claimant’s claim is an abuse of process.

2. The Claimant’s application to adjourn the trial be dismissed

3. The claim be stayed until 20 May 2015 so as to allow the Official Receiver an opportunity to apply to intervene.

4. In the event the Official Receiver does not by 4.30pm on 20 May 2015 apply to intervene:

a. the claim be struck out;

b. the Claimant shall pay the Defendants’ costs of the action to be assessed on the indemnity basis if not agreed; and

c. the Defendants shall have liberty to apply for a payment on account of those costs.

5. In the event the Official Receiver does by 4.30pm on 20 May 2015 apply to the Court to intervene, such application be reserved to Mr Justice Peter Smith for further directions.

6. The Claimant does by 4.30pm on 6 May 2015 pay the Defendants’ costs thrown away by the stay, hereby summarily assessed at £22,000.”

THE APPLICATION

The claimant subsequently became assignee of the cause of action after a bidding process. The claimant then returned to the court seeking to set aside the order made on the grounds that the abuse finding had been purged and he should be allowed to continue as an assignee.

KEY POINTS

  • The Court has a discretion to review an earlier order.
  • That power is entirely discretionary and not prescribed by any rules or restrictions.
  • The court will not consider a review merely to re-run the previous hearing on the same material.
  • The court is less favourably include to consider a review of a final decision.
  • The court will generally require a change of circumstances or a misleading of the judge in the first instance.
  • The court must consider all the circumstances of the case. None of the above are requirements for the court to consider  varying or revoking a previous order.

THE JUDGMENT ON THE ISSUE OF SETTING ASIDE THE PREVIOUS ORDER

“ANALYSIS OF THE ORDER

  1. First the Claimant takes issue with Mr Cuddigan QC’s contention made at the hearing on 19th May 2015 that my order was a “final order” and that there was no jurisdiction on that basis alone to vary or revoke it. The Claimant submitted that neither proposition was correct.

  2. I agree with that analysis. I adopt the observations in the White Book at paragraph 3.1.9.2:-

“The term “final order” is used in this paragraph to describe an order which determines between the parties the issues which are the subject matter of their litigation and which give rise to a cause of action estoppel between them.”

  1. I do not believe my order was such. It is self evident on the face that it contemplated the possibility of further applications being made and there was no substantive decision of a final nature as against the Claimant and the Defendants which could possibly give rise to an issue estoppel.

  2. As regards the other submission I do not accept the relevant rule relied upon by the Claimant (CPR 3.1 (7)) does not apply to final orders in any event.

  3. The provision in full says:-

“(7) a power of the court under these Rules to make an order includes the powers to vary or revoke an order.”

  1. It will be observed that there are no restrictions on what order can be made nor upon what basis an order can be made. Contrast that with the provisions originally under CPR 3.9 (1) which have now been removed. Nevertheless the current CPR 3.9 requires the court in addition to considering all the circumstances so as to enable it to deal justly with the application to consider the need for the litigation to be conducted efficiently and at proportionate costs and to enforce compliance with the rules practice directions and orders.

  2. It is not necessary fortunately for me to have to review the various decisions that have sprung up fully armed or otherwise in considering the impact of the changes made to CPR 3.9.

  3. The editors of the White Book opine that Rule 3.1 (7) came out of a decision to create an omnibus provision to replace a situation where various provisions under the former rules expressly said that there was such a power. In so making the general provision the effect was simply to bring the general CPR Rules in line with provisions that had been in place in insolvency legislation for decades see for example section 375 (1) IA 1986 (Bankruptcy) and Rule 7.47 (1) of the Insolvency Rules 1986 (Company Insolvency). Those latter rules have attracted attempts by the judiciary from time to time to give guidance as to how the discretionary power should be exercised see for example the 6th criteria under Rule 7.47 (1) set out by Laddie J in Papanicola v Humphries [2005] 2 All ER 418 at [25]-[28].

  4. I reviewed some of the cases in ITS v Morris [2010] EWHC 3275 (Ch) paragraphs 90-100.

  5. Not to be outdone Mr Cuddigan QC provided me with a schedule containing 17 decisions on the rule. That schedule sets out cases where Judges make observations as to how and in what circumstances discretion should be exercised. For example (this is really the high water mark of Mr Cuddigan QC’s submissions in my view) Patten J as he then was in Lloyds v Ager-Hansen [2003] EWHC 1740 (Ch) expressed the view that an applicant must either show some material change of circumstances or that the Judge who made the earlier order was mislead whether innocently or otherwise. However that cannot be elevated to the status of a sine qua non Patten J himself prefaced that by saying:-

“[Rule 3.1 (7) is not confined to purely procedural orders and there is no real guidance in the White Book as to possible limits of jurisdiction. Although this is not intended to be an exhaustive definition of the circumstances in which the power …..is exercisable it seems to me that for the High Court to revisit one of its earlier orders …..the applicant must show either some material change of circumstances or [misleading of the Judge]……. “

  1. In the same paragraph he submitted that it was not appropriate for a party to an earlier application to seek in effect to reargue that application by relying on submissions and evidence which were available to him at the time of the earlier hearing but which for whatever reason he or his legal representatives chose not to employ.

  2. Valuable though observations of Patten J are I do not accept that those are essential requirements. Nor if Counsel has missed something do I accept that necessarily the court is precluded from reconsidering that on an application to vary. It is absolutely essential in the case of a discretionary power (which the rule clearly is) that no attempt is made to fetter the basis for the Judge’s exercise of his discretion by attempting to provide quasi rules or observations in other cases and elevate them to the status of a rule or condition precedent to the exercise of the power.

  3. As I said in Morris no court has for example said it is never appropriate to revisit a final order as I said in my judgment in this case earlier the approach of the Court of Appeal Judges is not to say “never” but to say “hardly ever” in that context. There is a similar subtlety in Roult v Northwest Strategic Health Authority [2010] 1 WLR 487 at 493 where Hughes LJ as he then was said “…. I agree that in its terms the rule is not expressly confined to be procedural orders. Like Patten J …..I would not attempt any exhaustive classification which it may be proper to invoke it in the case of a final order he expressed the view that an invocation of the rule (for example) of a settlement agreed between the parties after detailed and highly skilled advice should not be revisited on the basis of the interests of justice in litigants which require a final order remain such unless proper grounds for appeal exist”. I do not see Hughes LJ with respect to the submissions of Mr Cuddigan QC saying that an application can never be made in respect of a final order.

  4. Equally in HRH Prince Abdulazziz Bin Mishal Bin Abdulazzizz Al Saud v Apex Global Management Ltd & anr [2014] EWCA Civ 1106 the Court of Appeal reaffirmed the broadly discretionary powers given to set aside an order. For example they reminded themselves in paragraph 58 that Rix LJ in Tibbles v SIG PLC [2012] 1 WLR 2591 held that the exercise of a power usually (emphasis added) involves either a material change in circumstances or a material misrepresentation. In paragraph 60 Arden LJ observed that Mann J held that there was no relevant change in circumstances because the facts relied on ought to have been clear. That is the factor that Mann J decided was relevant on the facts of the case before him.

  5. Mr Cuddigan QC submits that there is no change in circumstances in this case from the original decision made by me. I do not agree. At the hearing in April 2015 the Claimant had no title. He now has title. It is the Counsel of perfection to expect his then lawyers to cover the possibility they might obtain the assignment having failed to do so far and make a provision for them to apply in the event they obtained an assignment. I do not think it was possible to predict with any clear confidence as to how the Official Receiver would respond.

  6. In Kojima v HSBC [2011] EWHC 611 (Ch) Briggs J as he then was reviewed the authorities. The last case he considered was my decision inIndependent Trustee Services where he said this:-

26. Finally, in Independent Trustee Services Ltd v GP Noble Trustees & ors [2010] EWHC 3275 (Ch) Peter Smith J considered an application under Part 3.1(7) to vary an earlier final order made by him after a trial, on the application of the wife of one of the defendants whose potential interest in funds subject to the judge’s order had been overlooked by him when making it, in her absence. After referring to Lloyds v Ager-Hanssen, Collier v Williams and Edwards v Golding, but not Roult, he continued, at paragraph 100: “

It seems to me that with respect to the authors of the White Book and the submissions of Mr Spearman QC there is nothing in the Court of Appeal decisions which suggests that the rule should be cut down so as to be completely inapplicable to any final order. The wording of the rule is very wide. It seems to me it was intended by the draftsman to confer the extremely wide supervisory powers in the Civil Procedure regime that existed elsewhere in insolvency courts as set out above. That is not to say that a final order can be set aside by a Judge willy nilly. It is a matter of discretion to be exercised according to the particular circumstances of the case. That in my mind is all that the Court of Appeal Judges to which I have referred say when they support Patten J’s judgment. They say in effect as regards final orders it would be hardly ever appropriate to set aside a final order. They do not say “never”.”

The judge acknowledged that his earlier order was, in part, the result of a mistake by him and concluded, at paragraph 102:

“Accordingly, this is in my view a good example of why exceptionally the court should retain a power to review a final order.”

27. For HSBC Mr Turlough Stone submitted that the effect of Roult v North West Strategic Health Authority was to impose a simple jurisdictional ban on the application of Part 3.1(7) to final orders. By way of fallback he submitted that, in any event, the ‘judge misled’ category of case for revocation did not apply merely because, through lack of legal representation and advice, a litigant failed to deploy available material on the earlier occasion which he wished, after obtaining advice, to deploy at a later stage. For that purpose he relied principally upon Morgan J’s analysis in Simms v Carr.

28. For his part Mr Adair for Mr Kojima submitted first that Roult was not a decision about jurisdiction, and left open Peter Smith J’s analysis that exceptional circumstances might justify the revocation or variation of a final order under Part 3.1(7). As for the ‘judge misled’ category of circumstance calling for revocation, he submitted that where a litigant was unable to obtain professional advice, his failure to advance relevant material on the earlier occasion could not fairly be said to have been a matter of choice.

29. My conclusions are as follows. First, although Mr Stone has in his favour the description in its headnote of the Court of Appeal’s decision in Roult as one about jurisdiction, I do not read the judgment of Hughes LJ (with which Carnwath and Smith LJJ agreed) as going quite that far. Nonetheless it does in the passage which I have quoted, clearly establish that, to the extent that there exists any jurisdiction in the court to review its own final order, that is not to be justified on the alternative grounds first enunciated by Patten J, and approved in Collier v Williams, in the context of procedural or other non-final orders.

30. In my judgment once the court has finally determined a case, or part of a case, considerations of the type first identified by Patten J in Lloyds v Ager-Hanssen will generally be displaced by the much larger, if not indeed overriding, public interest in finality, subject of course to the dissatisfied party’s qualified right of appeal.

31. Mr Adair very sensibly took no technical point that the District Judge’s Order was not in form a final order, accepting that it did finally dispose of the part of HSBC ‘s claim which Mr Kojima  had admitted, subject only to appeal. Nonetheless he did submit that it was not the type of final order which ought properly to attract the public interest in finality. There was in his submission all the difference between a final order on the merits made after the trial of an issue, and a final order by way of judgment on admissions, since in the latter category the first instance court would never have investigated the entitlement of the claimant to that part of the claim which the defendant had admitted. Furthermore, he submitted, Roult v North West Strategic Health Authority was about a final order approving a settlement between the parties which, evidently, the Court of Appeal had regarded as a powerful factor against allowing scope for revocation or variation at first instance. He relied also on the fact that, in Edwards v Golding, the Court of Appeal had not been dissuaded from upholding the revocation of an order for joinder of a defendant by the fact that the claimant had then obtained a final order against him by way of judgment in default, which was also set aside.

32. While I recognise the force of Mr Adair’s point that the finality principle is more obviously justifiable where a final order follows a full trial, or for that matter a settlement between the parties, than where it merely gives effect to an admission, I am not persuaded that a judgment on admissions is not a judgment on the merits. Still less is it to be equated with a default judgment, as to which, regardless of its finality, there exists a well-established and distinct power to set aside, now to be found in CPR Part 13. Judgment on admissions is governed by CPR Part 14, specifically by Rule 14.3. Judgment is not obtained by some automatic process, but by application under Part 23 and, under rule 14.3(2):

“Judgment shall be such judgment as it appears to the court that the applicant is entitled to on the admission.”

While that process may not require the panoply of a trial, it is, like a summary judgment, nonetheless a judgment on the merits.

33. Leaving aside default judgments, with their self-contained regime for setting aside, I consider that a line has to be drawn between orders for which revocation may be sought under Part 3.1(7) upon the alternative grounds first identified in Lloyds v Ager-Hanssen and approved in Collier v Williams on the one hand, and final orders, to which the public interest in finality applies, on the other. I consider that orders made by way of judgment on admissions fall clearly within the second of those categories. Once a party has admitted a claim, and judgment has been given against him on that claim, the other party is in principle entitled to assume that, barring any appeal, there is an end to the matter.

34. It is unnecessary for me to conclude whether exceptional circumstances may nonetheless justify the revocation of variation of a final order within that second category, still less to prescribe in advance what those circumstances might be. It does not appear that Roult v North West Strategic Health Authority was cited to Peter Smith J in ITS v Noble Trustees. It is unnecessary for me to decide whether the truly exceptional circumstances in that case were sufficient, as Peter Smith J thought that they were, potentially to justify a wholly exceptional application of Part 3.1(7) to what he acknowledged was a final order. In the event, for other reasons, he did not make the variation sought.

35. Having concluded that the Lloyds v Ager-Hanssen analysis is inapplicable in the present circumstances, it is also unnecessary for me to resolve the apparent tension between Patten J’s dictum that a party will be excluded from seeking revocation of an order where he has chosen not to present certain materials, and Morgan J’s analysis in Simms v. Carr that a party will be precluded merely because those materials were available for use, regardless whether their non-use was a matter of conscious choice. Had it been necessary, I would have concluded that whereas a conscious choice not to deploy relevant material (whether evidence or argument) would generally present an almost insuperable barrier to an applicant for revocation under Part 3.1(7), the failure to do so, otherwise than through conscious choice, for example because of the absence of legal representation at the material time, would be a relevant negative factor against the exercise of discretion, but by no means an insuperable hurdle, if other relevant considerations militated in favour of exercise of the discretion. “

  1. Briggs J clearly acknowledged as I had suggested that the provisions were wide and the power was (and should be) unfettered.

DISCUSSION

  1. I draw the following conclusions from the examination of the authorities. The authorities I referred to above are not necessarily exhaustive but these are the conclusions I draw from considering the ones provided to me:-

1) The power to vary or revoke an order is entirely discretionary and is not prescribed by any rules or restrictions.

2) The court nevertheless will generally not allow a party to treat a review application as if it were an appeal or a simple attempt to re-run the previous hearing on precisely the same material.

3) The court will generally be less favourably inclined to consider a review of a final decision.

4) The court will generally require either a change of circumstances or a misleading of the Judge in the first decision.

5) The court nevertheless must consider all the circumstances of the case and none of the above is a requirement for the court to consider varying or revoking a previous order.

FACTORS

  1. The following factors in my view are relevant to the exercise of the discretion:-

1) The Claimant has a good case on the merits.

2) He has cured the abuse in my view. Mr Cuddigan QC submitted this could only be done if the creditors were paid in full and they have not been and they might not even be discernable. I reject that submission. The intervention of the Claimant’s bankruptcy transforms the creditors’ rights from being rights against the Claimant to rights under a statutory trust of the assets realised by the Trustee in Bankruptcy. I do not accept that the size or ascertainment of the creditors has any relevance in relation to what the Trustee does when faced with the knowledge of this new asset. He has a duty to realise that asset at the best possible price reasonably obtainable. If he has not done that he will be open to challenge in the Bankruptcy Court. It is no part of this court’s duty to go behind the Trustees’ decision whether on its own initiative or at the behest of the Defendants. Further the Defendants cannot challenge the sale price as it represents a larger price than they were prepared to pay. It follows that the price must be the best price reasonably obtainable.

3) There is no prejudice to the Defendants which cannot be covered by costs. There has been no significant delay. The trial will be relisted to be heard this term.

4) The Claimant has insofar as it is possible now purged his abuse and the Official Receiver has sold the property rights at the best price reasonably obtainable. The Defendants could never have raised any objection if for example the Official Receiver had become aware of the Claimant’s failure to disclose but had nevertheless sold the asset to him to enable him to commence the action. The difference is minimal if the sale takes place after the action is commenced if it is corrected. If it is not open to the Defendants to have the action struck out.

5) The Defendants under bid and failed to consider the commercial aspects beyond what they perceived to be the true value of the asset (i.e. they failed to take into account the costs exposure they faced).

6) The Claimant will be unlikely to recover any significant damages because there is likely to be a huge shortfall between his assessed costs if he wins and his party and party costs. His insurers will inevitably invoke a clause in their documentation to relieve him of his damages to cover the shortfall.

7) This is a change of circumstances from the time of the hearing in May because the Claimant now has gathered the title in. Further he is bringing his claim not as the original person who failed to disclose his assets but as a person deriving title through an assignment from the Official Receiver. He should not therefore have his misconduct attributed against him when he is an assignee. Mr Cuddigan QC’s submission is wrong in my view as it would mean that anybody could acquire the interest from the Official Receiver except the Claimant.

8) The Defendants are faced with a claim that they perceive to be of low value with an exorbitant costs exposure. However they accept that will be capable of rectification if they win the proceedings by an appropriate assessment by the costs Judge in due course.

FAILURE TO PURGE CONTEMPT/ILLEGALITY

  1. The Defendants in their written submissions as developed by Mr Cuddigan QC in his oral submissions (paragraphs 30 et seq) submitted that the Claimant should not have the discretion exercised in his favour because the Claimant breached his statutory duties, abused the process of the court and “failed to prove that the victims of that abuse had been fully compensated”.

  2. I do not accept that last point because it confuses the liability to pay creditors in full before bankruptcy with the more limited obligations post bankruptcy. By that I mean of course the Claimant has a duty to assist the Official Receiver in the realisation of his assets. He has now done that. The size of the creditors and whether they will be fully compensated or not is neither here nor there as the Official Receiver has obtained the best price reasonably obtainable for the asset. It is not open to the Defendants to say otherwise given their own much lower estimate of its worth.

  3. On the question of possible illegal conduct by the Claimant I determined that it was not appropriate to deal with that at this stage as I have had no evidence from the Claimant. I accordingly indicated to Mr Cuddigan QC that this would be a point which it will be open to the Defendants to maintain at the trial. This is supported by the fact that the Defendants somewhat in anticipation have produced a draft Re Amended Defence raising that point.

CONCLUSION

  1. The arguments are finally balanced. However the matter which is predominant in my view is the fact that the Claimant has a case which will be lost if this amendment is refused. The problem does not arise out of anything that affects the Defendants. This is reinforced by the fact that if the Claimant had started the action in a properly constituted way that revealed that initially he had failed to disclose the asset but that he had done a deal with the Official Receiver in any event it would have been impossible in my view for the Defendants to object to that procedure. I accept that the breach is not technical but equally it is disproportionate in my view now the defect has been cured to deprive the Claimant of his right to have the issue ventilated in court. If the Defendants win they will be fully protected by the ability of the court to properly assess the costs in their favour. If the Defendants lose the court will be equally vigilant to ensure that the Defendants are not the subject matter of excessive or unreasonable costs.

  2. This is not a pre trial assessment of the strength of the Claimant’s case. Such a procedure is not available see Wenlock v Maloney [1965] 1 WLR 1238.

  3. That principle is equally applicable to cases coming under the CPR see (for example) the analysis in Hanco ATM Systems Ltd v Cashbox ATM Systems Ltd [2007] EWHC 1599 (Ch) at paragraphs 18-31 and Groveholt Ltd v Allan Hughes & Anr [2008] EWHC 1358 (Ch) at paragraphs 26-36.

  4. Applying those principles one has to be careful as to whether or not a case can properly be considered at an interim stage. Obviously if it is clear the case has no prospect of success then it can be disposed of either under CPR 24 or on an application to strike it out. Conversely if it is arguably good the case has to go to trial. There is no intermediate procedure whereby provisional and untested assessment of evidence should be used to strike out an application. This in my view is what the Defendants are trying to do in raising matters outwith the immediate issue of failure to obtain title.

  5. I therefore accede to the Claimant’s application. If the parties are unable to agree them I will hear submissions as to costs, any consequential orders arising out of the amendments and for the trial which arise out of this decision.”

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