In Sinclair -V- Dorsey & Whitney (Europe) LLP  EWHC 3888 (Comm) Mr Justice refused an application from relief from sanctions. (I am grateful to Michael Wilson & Partners Ltd for sending me a copy of the transcript).
“The starting point is that breach of an unless order will almost always be treated as serious. It is a failure to comply with a court order in the knowledge that the court has already attached sufficient importance to the need to comply with it so as to impose the sanction of strike out as the proportionate consequence of noncompliance.”
- It will be a very rare case in which a court will re-visit a peremptory order and find it to be disproportionate.
- The fact that an order is a peremptory order is an important factor when considering whether relief from sanctions should be granted.
- Security for costs must be given in a fully acceptable form. A last minute proposal to use ATE is unlikely to comply with an order for security.
- The claimants issued proceedings claiming damages for negligence against several firms of lawyers.
- There had been no attempt to comply with the pre-action protocol.
- An order for security for costs was made in July 2015 with an order that the claimantS provide the defendants with a copy of any ATE insurance policy by the 14th September 2015
- The claimants applied for an extension of time to provide security and, on the 11th September 2015, an extension was provided but backed by a peremptory order.
- The claimantS sent through details of an ATE policy, the policy did not comply with the order.
- The claimants asked the defendants to agree a further extension of time. The defendants refused pointing out that the action stood struck out as an automatic consequence of the failure to comply.
- The judge made an order that the claims be struck out and judgment entered for the defendants as a result of the failure to comply.
THE APPLICATION FOR RELIEF FROM SANCTIONS
It was common ground that the court had to consider the Denton principles.
THE SIGNIFICANCE OF THE ORDER BEING A PEREMPTORY ORDER
The judge considered the implications of the fact that the order being breached was a peremptory order.
“… it seems to me that when a court is considering an application for relief from sanction where there has been a failure to comply with an unless order which has specified that a strike out is the sanction for failure to comply, the court must proceed on the basis that the sanction of strike out contained in the unless order was properly imposed as a proportionate sanction for failure to comply. It will, therefore, be a comparatively rare case in which the applicant can persuade the court, absent a material change of circumstances, that it would now be appropriate to grant relief from the sanction as being disproportionate.”
THE DENTON CRITERIA
“The first stage is to enquire whether the breach is serious or significant. I have no doubt that in this case the breach ought properly to be categorised as very serious. The starting point is that breach of an unless order will almost always be treated as serious. It is a failure to comply with a court order in the knowledge that the court has already attached sufficient importance to the need to comply with it so as to impose the sanction of strike out as the proportionate consequence of noncompliance. Secondly, the requirement in this case that the claimants provide security for costs is an important one. The first claimant is resident in the United Arab Emirates, the second claimant is a Delaware corporation. Neither has at any stage, including on the present application, given a full and frank account in a witness statement of their assets. There are very real and justifiable concerns about their ability or willingness to meet a costs order in favour of the defendants if and when one is made.”
The judge also pointed out:
- The protracted history in relation to procedure security from the claimants.
- The failure to raise the possibility of relying on ATE timeously before the deadline, raising it only minutes before the deadline expired.
- The fact that even eight weeks after the deadline the claimants were not offering security which was satisfactory. The ATE was riddled with provisos.
- The failures had had had a serious adverse impact on the progress of the claim, delaying the date of the CMC
NO GOOD REASON FOR THE BREACH
“37. Turning to the second stage which enquires: Is there good reason for the breach? The answer is unequivocally no. Mr Meade’s witness statement in support of the application gives no detail as to what was happening in relation to the ATE policy, or when, so as enable the court to treat the delays as something which were beyond the reasonable control of the claimants. In paragraph 47 he refers cryptically to “third party processes”, but perhaps most importantly, the whole tenor of the written statement treats the procurement of WordWave International Ltd trading as DTI the ATE policy as if it were something which came from a standing start on or after 17 September 2015 when there was a change in solicitors. That is a false premise on which to put forward the evidence”
THE THIRD STAGE
40. I turn then to the third stage. I am required to pay particular attention to the two factors identified in CPR 3.9. First is the need for litigation to be conducted efficiently and at proportionate cost. In this case there has been repeated failure to provide security and the effect has been the delayed progress of the proceedings. Moreover, that aspect is only one and the last in the line of a number of aspects in which the claimants have conspicuously failed to conduct the litigation efficiently and at proportionate cost. There was no compliance with the pre-action protocol. There should have been steps taken to fix the first CMC early in 2015, but there has still been no CMC 18 months after the commencement of the action. As the claimants now accept, the first defendant has wrongly been sued and the claim should have been WordWave International Ltd trading as DTI brought in relation to Mr Douglas-Henry’s conduct during that period against Dorsey & Whitney LLP.
41. On 9 July 2015, which was the day before the hearing on 10 July, the claimants served draft amended particulars of claim, abandoning three of the four bases of claim against the defendants and confining the claim, or seeking to confine the claim, to the claim in relation to the Max shares. But the application to make those amendments, and in particular the costs consequences, are yet to be determined. The security for costs aspects of the litigation have required three court hearings and a paper application to the judge, which is a disproportionate amount of time and cost and prejudicial to other court users.
42. So far as the other particular aspect which rule 3.9 requires to be given particular importance, that is to say the imperative in subparagraph (b) of enforcing compliance with rules, practice directions and orders, that is a consideration of particular weight in this case against the grant of relief from sanctions. There has been an unless order. There has been no proper excuse for failure to comply. It was accepted at the hearing on 11 September 2015 that this would be a last chance and there is a very powerful public interest in ensuring that parties recognise the importance of complying with unless orders.
43. In addition, all the factors I mentioned under the first heading which make this a very serious breach come into play again at the third stage. Of particular importance to my mind at the third stage, is the fact that Flaux J has already determined that the striking out of the claims is an appropriate and proportionate sanction for failure to comply with the provision of security for costs. He made that determination when considering whether to make, and in making, the unless order and in granting an additional period of 14 days. There is nothing to put this case in that rare category of cases where that value judgment should be revisited. There has been no material change in circumstances which has led to a failure to comply from what could reasonably have been contemplated and as being within Flaux J’s expectation at the time that the order was made.
44. I also have in mind, although this is a point of more minor weight, that there was a delay which I regard as excessive in making this application to seek relief from sanctions. It was a week after Flaux J’s order and almost two weeks after the deadline had expired.
45. Mr Shepherd has emphasised that what the court must do is consider all the circumstances of the case and seek to do justice. He submits that, if relief from sanctions is not granted in this case, then the claimants would lose a claim with a real prospect of success for an amount in excess of £30 million and that that is very severe prejudice. He says that that is disproportionate to the degree of fault and to the degree of prejudice which will be suffered by the claimants if the claim is not reinstated. The prejudice to the claimants in that way is indeed an important consideration, but it is not, in my view, sufficient to warrant the grant of relief from sanctions applying the principles which I have identified. Indeed, to allow it to do so would turn the new approach which is required by Mitchell and Denton on its head.
46. Accordingly, the application will be dismissed.
Most of the cases relating to relief from sanctions are catalogued in the Sanctions: Case Watch section of this blog.