MONEY JUDGMENT SHOULD NOT HAVE BEEN GIVEN AFTER BREACH OF PEREMPTORY ORDER

In Rubin -v- Parsons [2016] EWHC 237 (Ch) Mr Justice Peter Smith considered the effect of breach of peremptory order in a case where the applicants were claiming much more complex relief.  It shows that a much more calibrated approach is needed to the issue of the appropriate remedy in cases where the claim is for more than sums due or damages.

Where the case goes beyond the simple remedies sought in sub rule (2) the court must assess very carefully the extent to which not withstanding the debarring order the other party is required to prove its case”

KEY POINTS

  • The respondents to an unfair prejudicial petition were in breach of a peremptory order and were debarred from defending.
  • The judge, at a case management hearing, entered judgment for the applicants for a specific sum of money plus costs.
  • The registrar, however, failed to take into account the counterclaims.  Further a money judgment did not resolve other issues such as beneficial ownership of property.
  • The judgment was, therefore, set aside.

PRACTICE POINTS

  • This case shows the complex issues that can arise when a party has a “judgment” on part of a case. Careful consideration has to be given to what can, and cannot, be argued (see the posts and links at the end of this article).
  • Note that the problem arose because of the failure to give disclosure in an adequate manner.
                 The requirement to list is so obvious so as to not require explanation. It is not for the                                         Petitioners/Respondents to have to work their way through a large amount of documents which                   are not explained in an attempt to understand what information is being provided.

THE CASE

The petitioners issued a petition for the winding up of a company on the grounds of unfairly prejudicial conduct. The respondents counterclaimed.

  • An order was made that the respondents file key documents by the 14th May 2015.
  • The respondents failed to comply and an order was made that unless they supply the documents by the 30th June 2015 they “shall be debarred from defending the proceedings”.
  • The respondents provided a large amount of documents, however the format was hopeless.
  1. The Appellants provided a large amount of documents but it is jumbled and was not in the form required by Mr Registrar Baister’s order. The requirement to list is so obvious so as to not require explanation. It is not for the Petitioners/Respondents to have to work their way through a large amount of documents which are not explained in an attempt to understand what information is being provided. Nevertheless the Petitioners/Respondents’ solicitors on receipt of the documents wrote “these documents are not in the form required by the Court Orders but to a great extent do satisfy the terms of the order of 15th April to 16th June with the following obvious exceptions” they then set out 5 items and concluded that “In all of the above circumstances we are of the view that your clients remain in breach of the orders of 15th April and 16th June 2015”.
  • The parties attended a hearing before the Registrar on the 10th July 2015 which was listed as a case management conference.
  • There was reference, at the hearing to a without prejudice offer that the respondents had made £52,000.
  1.  Mr Burns disclosed a without prejudice offer that the Respondents/Appellants had made of £52,000. This to my mind was a plain breach of the without prejudice privilege which attached to that offer. I refer generally to “Documentary Evidence” (12th Edition) Charles Hollander QC paragraph 20-01 and following. This regrettably contaminated the learned Registrar’s mind. Mr Parsons cannot be criticised as a lay man for not realising that Mr Burns should not have revealed this figure
  • The Registrar then indicated, to save costs and court time, he was prepared to give judgment for the £52,000.
         “In other words, the Registrar having been told of the without prejudice position wrongly, is                            prepared to offer that immediately to the Petitioners/Respondents.”

THE ERROR THAT THE REGISTRAR MADE

  1. “The error with respect to the learned Registrar arises out of the failure to consider those derivative claims and the Counterclaims. Let us suppose that the Counterclaim carried on and when the evidence was heard in that it was clearly established that the Petitioners were to blame for the breakdown. That would be a finding that would be available on the Counterclaim but would no longer be available to defend the Petition because the Petition had been disposed of finally by the award of £54,000.
  2. In addition the order for the payment of £54,000 is extended to the Fourth Respondent yet the Fourth Respondent could never have complied with the order for production of that material. Further it does not appear to be identified as a Respondent in the original order of 16th June 2015 and the original order made by Arnold J was against the First and Second Respondent.
  3. Although the learned Registrar acknowledged that the accountant’s report was not prepared for the purpose of the proceedings there was no critical examination of that report. Once it is considered its limited use is exposed, as I have set out above, it simply should not have been used in my judgment at the hearing especially when it was sprung on the Appellants/Respondents without warning. It lured the Registrar in to thinking that the Petitioners would establish an entitlement to at least £100,000 when there was no basis for that at all. That led him inexorably to the conclusion that it would be almost certain that they would achieve £54,000. He was only aware of that figure of course because Mr Burns revealed a figure which was covered with without prejudice litigation privilege.”

THE APPELLANT’S ARGUMENTS THAT DID NOT SUCCEED

  • The judge rejected an argument based on the basis that the original unless order was unfair.
  1. I refer to the revised skeleton argument submitted on behalf of the Appellants/Respondents. After pointing out (paragraph 2) that the order was made in the course of a costs and case management hearing where the Appellants/Respondents were not represented and on the court’s initiative it was following what is described as apparent non compliance with the Unless Order without giving them any adequate opportunity to explain their purported compliance or seek relief from sanctions. This was despite, as they pointed out the existence of a cross petition and derivative claim brought by the Appellants/Respondents.
  2. I can disregard the complaints about the lack of opportunity to show purported compliance or to seek relief from sanctions. First the learned Registrar explained why there had not been compliance namely because the material provided was not listed as required by the order of Arnold J. I agree with that analysis. It follows that the Unless Order has taken effect. It should also of course be appreciated that there was no appeal against the Unless Order. As regards the question of relief from sanctions the learned Registrar raised that. It might have been different had the Appellants/Respondents sought an adjournment to seek relief against sanctions or had sought relief against sanctions on the basis that they had not complied with the Unless Order. Neither is the fault of the learned Registrar. The Appellants/Respondents have now addressed that by their latest application.
  • An argument in relation to the a failure to give an opportunity to seek legal advice was also rejected.
                Next, complaint is made about the way in which the Registrar dealt with the non compliance                        and a complaint is then made that he failed to give them a reasonable opportunity to obtain legal                 advice to make an application for relief from sanctions. I cannot see that there is any basis for                       criticising the Registrar on those matters as I have set out above.

WHERE THE APPEAL SUCCEEDED FAILURE TO TAKE INTO ACCOUNT THE COUNTERCLAIMS

  1. The next criticisms are more significant. First it is complained that the learned Registrar purported to exercise his broad discretion under section 996 (1) CA 2006 without regard to the possible impact of the cross petition which remained to be determined. Then it is complained that he failed to specify the consequences of the relief granted to the Petitioners as specifically whether or not the sum ordered reflected or included the value of the Petitioners’ interest in the Third Respondent and meant that the Petitioners were obliged upon payment of the sum to transfer their interests in the Third Respondent and whether it included account of profits derived from or accumulated by the Fourth Respondent through wrong doing on its part. Finally it is said that in effect a compromise was imposed on the Appellants/Respondents where there is no power to do so.
  2. There is much force in all of those submissions in my view. The question of the beneficial ownership was simply not addressed as Mr Burns frankly accepted. Equally the question of the derivative applications was not addressed. As I asked in argument, was the payment of £54,000 to the lay Petitioners/Appellants intended to be in full and final settlement of the claims including the derivative claims that they were bringing on behalf of the Third Respondent? The next question I then posed with Mr Burns was whether it was appropriate for them owing a fiduciary duty in effect to give away any claims they brought on behalf of the LLP for a personal payment of £54,000 to themselves. Mr Burns described that as being a clever point brought up by the Judge. Whether that is the case or not it is in my mind symptomatic of the failure to address the complexities of the action and to treat it as a debt/damages claim alone. I can well understand the learned Registrar’s desire to curtail the costs in this case given the modest value of the LLP. I have already observed how the asset value of the LLP appears to be based on a speculative figure of good will. However the enthusiasm of the Registrar to achieve a final result at that hearing should in my view have been with respect to him restrained. The failure to address all the other matters identified by me above and the impact especially on the Counterclaim is fatal to his decision to render the whole claim down to a simple monetary payment. I have already observed how he became aware of that monetary figure and to my mind that was just wrong and unjust.
  3. It is in my view clear that the learned Registrar imposed a settlement on the Appellants/Respondents by awarding the Petitioners/Respondents precisely the figure that they had offered on a without prejudice basis.

THE CONSEQUENCES OF THE DEBARRING ORDER

Where the judgment is of wider interest in particular is the discussion of the debarring order.
  1. The matter which was debated most vigorously between Mr Burns and myself was the consequence of the debarring order. His submission was that the debarring order, once not complied with, took effect without the need for any further order and that on an application to enter judgment under CPR 3.5 (5) the court’s function was limited to deciding what order should properly be made to reflect the sanctions which had already taken effect. In that respect he relied upon the Court of Appeal decision in Marcan Shipping (London) Ltd v Kefalas & Anr [2007] 1WLR 1864 I refer to paragraphs 34-36 as follows:-
“34 In my view it should now be clearly recognised that the sanction embodied in an “unless” order in traditional form takes effect without the need for any further order if the party to whom it is addressed fails to comply with it in any material respect. This has a number of consequences, to three of which I think it is worth drawing particular attention. The first is that it is unnecessary, and indeed inappropriate, for a party who seeks to rely on non-compliance with an order of that kind to make an application to the court for the sanction to be imposed or, as the judge put it, “activated”. The sanction prescribed by the order takes effect automatically as a result of the failure to comply with its terms. If an application to enter judgment is made under rule 3.5(5), the court’s function is limited to deciding what order should properly be made to reflect the sanction which has already taken effect. Unless the party in default has applied for relief, or the court itself decides for some exceptional reason that it should act of its own initiative, the question whether the sanction ought to apply does not arise. It must be assumed that at the time of making the order the court considered all the relevant factors and reached the decision that the sanction should take effect in the event of default. If it is thought that the court should not have made an order in those terms in the first place, the right course is to challenge it on appeal, but it may often be better to make all reasonable efforts to comply and to seek relief in the event of default. “
35 The second consequence, which follows from the first, is that the party in default must apply for relief from the sanction under rule 3.8 if he wishes to escape its consequences. Although the court can act of its own motion, it is under no duty to do so and the party in default cannot complain if he fails to take appropriate steps to protect his own interests. Any application of this kind must deal with the matters which the court is required by rule 3.9 to consider.
36 The third consequence is that before making conditional orders, particularly orders for the striking out of statements of case or the dismissal of claims or counterclaims, the judge should consider carefully whether the sanction being imposed is appropriate in all the circumstances of the case. Of course, it is impossible to foresee the nature and effect of every possible breach and the party in default can always apply for relief, but a conditional order striking out a statement of case or dismissing the claim or counterclaim is one of the most powerful weapons in the court’s case management armoury and should not be deployed unless its consequences can be justified. I find it difficult to imagine circumstances in which such an order could properly be made for what were described in Keen Phillips v Field as “good housekeeping purposes”.
  1. Moore-Bick LJ pointed out the difference between a failure to comply with an Unless Order and an application to strike out for failure to comply in paragraph 39:-
“39 It appears that both the judge and the defendants themselves may have been misled by those submissions and by the requirements of rule 3.5(5) into approaching the matter as if it were an application under rule 3.4(2)(c) to strike out the claim for failure to comply with an order of the court to which no specific sanction had been attached. If that had been the case, it would have been necessary for the judge to consider all the circumstances before deciding whether it was appropriate to make such an order, but it was not and he should therefore have confined himself to the question whether the order being sought by the defendants properly reflected the effect of Marcan’s failure to comply with the order made on 21st July. In the event, however, having found that there was a clear breach of that order, the judge asked himself whether he should, in his words, “activate” the sanction for which it provided. In the light of the nature of the default and Marcan’s previous failures to comply with the court’s orders he considered that he should do so and made the order sought by the defendants.”
  1. It is important to appreciate however that Marcan was a case involving striking out of the Claimant’s statement of case. Once it is struck out or they are debarred from defending the action then is dead. The position as regards debarring a Defendant from defending the case is in my view different. It will depend entirely on the nature of the Claimant’s case. This is anticipated by CPR 3.5 which provides:-
“Judgment without trial after striking out
3.5-(1) This rule applies where-
(a)the court makes an order which includes a term that the statement of case of a party shall be struck out if the party does not comply with the order; and
(b) the party against whom the order was made does not comply with it.
(2) A party may obtain judgment with costs by filing a request for judgment if-
(a) the order referred to in paragraph (1)(a) relates to the whole of a statement of case; and
(b) where the party wishing to obtain judgment is the claimant, the claim is for-
(i) a specified amount of money;
(ii) an amount of money to be decided by the court;
(iii) delivery of goods where the claim form gives the defendant the alternative of paying their value; or
(iv) any combination of these remedies.
(3) The request must state that the right to enter judgment has arisen because the court’s order has not been complied with.
(4) A party must make an application in accordance with Part 23 if he wishes to obtain judgment under this rule in a case to which paragraph (2) does not apply.”
  1. It will be seen that a party can simply obtain a judgment by filing a request where either the claim relates to the whole of the statement of case or where there is a claim for a specified amount of money or money to be decided by the court or delivery of the goods where the Defendant is given an alternative of paying the value.
  2. The claim in the Petition could only fall within sub rule a if the £54,000 was sought by the Petitioners as satisfying the whole of the statement of case. That was clearly not the situation as the question of the beneficial interests of the Petitioners in the LLP was not considered as Mr Burns accepted. More significantly, the question of the derivative actions was not considered either. If those matters are not dealt with then the order the learned Registrar made cannot stand because the figure of £54,000 payment cannot be dealt with in isolation from those outstanding matters. I have already observed that in this case the counterclaim is a further factor which in my view inhibits the Registrar in dealing with the way he attempted to do so.
  3. Where none of the requirements of sub rule (2) are applicable the party has to apply for a judgment. That is what Mr Burns originally intended to do. Unfortunately he was drawn in to the enticing trap of immediate payment of £54,000.
  4. There is nothing significant about this in my view. Where the case goes beyond the simple remedies sought in sub rule (2) the court must assess very carefully the extent to which not withstanding the debarring order the other party is required to prove its case. I averted to this in the case ofMasood & Ors v Zahoor [2008] EWCH 1034 (Ch) at paragraphs 140-154 as follows:-
“140 As I have already set out in this judgment SM has in my view forged documents. The next section of this judgment will deal with the more serious aspects of his forgery.
141 It is also the case that MZ and PS have also forged documents. Although in the closings on behalf of MZ it was submitted in effect that his forgery was not too serious, I reject that. In my view the documents MZ and PS forged were done to create a deliberately false impression that documents were contemporaneously executed on the dates put on them. This was done to bolster their case and to deceive the Court. These documents had been put forward initially as being genuine documents. They were referred to in pleadings. For example in paragraph 45 of D1-D5’s Defence reference is made to the Loan documents as being dated 13th December 1996 but the true date of the execution is not revealed. Similarly in paragraph 124 reference is made to the Agreement dated 19th September 2002 whereby PS took over the obligations of KS under the Loan Deed. In fact this document was not executed until 2005. Likewise PS in her Amended Defence whilst referring to the Loan Agreement (paragraph 12) does not identify that it was not executed until May 2002. No mention of that fact is made in the section headed “Developments in 2002” (paragraphs 18-22) either. Finally the 19th September 2002 Agreement was in the initial pleading referred to as an agreement in writing and it is only by amendment dated 18th January 2008 that it is revealed that there was an oral agreement and a later written agreement (2005) but it fails to explain why the document is dated 19th September 2002. In this context it was established in cross examination of PS and MZ that the terms set out in this document could not possibly have reflected an agreement that was struck in September orally.
142 The relevant documents were of course given false dates in the disclosure list. Under CPR 32.19 a party is deemed to admit the authenticity of a document disclosed to him under part 31 unless he served notice that he wished the document to be proved at trial. It seems to me plain that if the true date of the creation of the document is not set out in the disclosure statement a party will not know that the document is not a genuine document i.e. it has a false date on it and was created on a different date yet he would be deemed to admit the authenticity about something which he does not know. This seems to me to be a plain breach of the obligations of disclosure and has led to a false disclosure statement.
143 As the rest of this judgment will show the trial in this case took place with the major witnesses all having lied and therefore having delivered perjured evidence. In addition the major witnesses on both sides have sought to bolster their case by forged documents.
144 This is deplorable. It made my task of evaluating the true facts about the dispute difficult if not impossible in some areas. All the parties have abused the process of the Court by the way in which they have presented their cases. I should say that when I say that I am not criticising any of the lawyers. Save in respect of the joinder of PS about which I shall say further in this judgment I have no criticisms of the way in which the case has been presented by the lawyers as it appears before me.
145 It is therefore distasteful and unacceptable that I am required to determine the dispute between parties who commit such wanton acts of dishonesty.
146 I have considered the case of Arrow Nominees Inc& anr v Blackledge [2000] 2 BCLC 167 (C.A.) In that case there was a petition under section 459 of the Companies Act 1985 presented by two minority shareholders Nigel Tobias (“NT”) by his Nominee company Arrow Nominees Inc and Lorraine Blackledge. NT in the course of standard disclosure produced documents which he knew to be forged. An application was made for the petitions to be dismissed on the basis that a fair trial was not possible because of that forgery. The Judge dismissed the application because he was not so satisfied but he emphasised that if further evidence emerged during the trial that documents had been suppressed or fraudulently altered an application could then be renewed and is highly likely to be successful. The petitioner’s case was opened; their evidence led and they were extensively cross examined. During the course of the trial NT was found to have forged diary entries in addition to the letters which he had initially admittedly forged. Despite that the Judge did not strike out the petition as he believed there was no substantial risk that a fair trail could not be held although he acknowledged that the part of the Claimant of the petition which was based on documents could not be fairly tried. The Respondents appealed and the Court of Appeal upheld their appeal. In giving the leading judgment Chadwick LJ said this:-
“The appeal against the judge’s refusal to strike out on the second application
42. The acts or omissions on the part of the Blackledge respondents on which the petitioners rely as conduct of the company’s affairs in a manner which is unfairly prejudicial to their interests are to be found in the amended para 8 of the petition. The paragraph is introduced by an allegation in three parts: that ‘in causing or procuring matters hereunder complained of’ the respondents have acted (i) contrary to the 1994 agreement, (ii) contrary to the legitimate expectations of the parties, and (iii) ‘in any event’ unfairly in the conduct of the company’s affairs so as to prejudice the petitioners. It is alleged, further, that Graham and Margaret Blackledge are ‘in breach of the fiduciary duty of directors’.
43. The judge held that there was a substantial risk that there could not be a fair trial in so far as the complaints of unfair conduct were based on (i) or (ii) – acting contrary to the 1994 agreement or to the petitioners’ legitimate expectations. He did so on the basis that the admitted forgeries, coupled with his finding that Nigel Tobias had continued to lie on oath as to the extent of his fraudulent activity in relation to documents, made it impossible to have confidence in any documents produced by the petitioners unless those documents were corroborated by some other evidence. Further, and this is an important element in his approach, that the existence of the forged documents and the diaries was likely to have infected evidence contained in affidavits and witness statements prepared in reliance on those documents and diaries.
44. The judge’s conclusion as to the extent and effect of Nigel Tobias’ fraudulent conduct is challenged by a respondents’ notice served by the petitioners. But, to my mind, that challenge must fail. There was ample material before the judge to justify his conclusion that Nigel Tobias had continued to lie on oath as to the extent of his fraudulent activity in relation to documents. The judge had the advantage, which this court did not have, of hearing and seeing Nigel Tobias give oral evidence at the trial under cross-examination. There is no basis on which this court could interfere with the judge’s finding of fact. Nor can it be said that the judge was wrong to take the view that the existence of forged documentary material is likely to infect the oral evidence. In a case of this nature it is inevitable that documents will provide the basis for recollection. It is likely to be very difficult for a witness – even for a witness doing his or her best to tell the truth under oath – to accept that what the witness now thinks that he or she recalls from memory may, in truth, be based on a document which has been shown to be false, or in relation to which there is suspicion. The effect of forged documentary material on a trial is pernicious, because witnesses who have, at one stage in the process of preparing for trial, believed that documentary evidence to be genuine are unlikely to be able to evaluate, objectively, the effect which it has had on their recall of the events to which it relates”
147 After reviewing the surviving allegation Chadwick LJ concluded that the Judge was wrong to allow these to survive for the reasons set out in paragraph 53 as follows:-
“53. In those circumstances I take the view that it was wrong for the judge to allow the petition to proceed once he had reached the conclusion that there was a substantial risk that the allegations in relation to the disputed terms of the 1994 agreement were incapable of a fair trial. He recognised, correctly, that a claim to relief based on allegations of abuse by the Blackledge respondents of their powers as directors and shareholder after 1997 would not require an investigation into what had or had not been agreed in 1994. But, as it seems to me, he failed to appreciate that, on a true analysis, the allegations made in the petition were allegations of oppressive conduct by Blackledge plc as supplier or as lender; and were not allegations of oppressive conduct by Blackledge plc as majority shareholder. In so far as there were general allegations of breach of duty by Graham and Margaret Blackledge as directors, those allegations were not supported by any evidence which the judge identified; and are contradicted by the material which was put before this court. In my view the judge ought to have reached the conclusion that, once the allegations in respect of which there was a substantial risk that Nigel Tobias’ fraudulent conduct had made a fair trial impossible were put on one side and left out of account, there was no case for relief which remained to be tried.
54. It would be open to this court to allow the appeal against the judge’s refusal to strike out the petition on that ground alone. But, for my part, I would allow that appeal on a second, and additional, ground. I adopt, as a general principle, the observations of Millett J in Logicrose Ltd v Southend United Football Club Ltd (1988) Times, 5 March, that the object of the rules as to discovery is to secure the fair trial of the action in accordance with the due process of the court; and that, accordingly, a party is not to be deprived of his right to a proper trial as a penalty for disobedience of those rules, even if such disobedience amounts to contempt for or defiance of the court, if that object is ultimately secured, by (for example) the late production of a document which has been withheld. But where a litigant’s conduct puts the fairness of the trial in jeopardy, where it is such that any judgment in favour of the litigant would have to be regarded as unsafe, or where it amounts to such an abuse of the process of the court as to render further proceedings unsatisfactory and to prevent the court from doing justice, the court is entitled, indeed, I would hold bound, to refuse to allow that litigant to take further part in the proceedings and (where appropriate) to determine the proceedings against him. The reason, as it seems to me, is that it is no part of the court’s function to proceed to trial if to do so would give rise to a substantial risk of injustice. The function of the court is to do justice between the parties; not to allow its process to be used as a means of achieving injustice. A litigant who has demonstrated that he is determined to pursue proceedings with the object of preventing a fair trial has forfeited his right to take part in a trial. His object is inimical to the process which he purports to invoke.
55. Further, in this context, a fair trial is a trial which is conducted without an undue expenditure of time and money; and with a proper regard to the demands of other litigants upon the finite resources of the court. The court does not do justice to the other parties to the proceedings in question if it allows its process to be abused so that the real point in issue becomes subordinated to an investigation into the effect which the admittedly fraudulent conduct of one party in connection with the process of litigation has had on the fairness of the trial itself. That, as it seems to me, is what happened in the present case. The trial was ‘hijacked’ by the need to investigate what documents were false and what documents had been destroyed. The need to do that arose from the facts (i) that the petitioners had sought to rely on documents which Nigel Tobias had forged with the object of frustrating a fair trial and (ii) that, as the judge found, Nigel Tobias was unwilling to make a frank disclosure of the extent of his fraudulent conduct, but persisted in his attempts to deceive. The result was that the petitioners’ case occupied far more of the court’s time than was necessary for the purpose of deciding the real points in issue on the petition. That was unfair to the Blackledge respondents; and it was unfair to other litigants who needed to have their disputes tried by the court.
56. In my view, having heard and disbelieved the evidence of Nigel Tobias as to the extent of his fraudulent conduct, and having reached the conclusion (as he did) that Nigel Tobias was persisting in his object of frustrating a fair trial, the judge ought to have considered whether it was fair to the respondents, and in the interests of the administration of justice generally, to allow the trial to continue. If he had considered that question, then, as it seems to me, he should have come to the conclusion that it must be answered in the negative. A decision to stop the trial in those circumstances is not based on the court’s desire (or any perceived need) to punish the party concerned; rather, it is a proper and necessary response where a party has shown that his object is not to have the fair trial which it is the court’s function to conduct, but to have a trial the fairness of which he has attempted (and continues to attempt) to compromise”.
Ward LJ delivered a concurring judgment but in so doing he made reference to the consequences of dishonest conduct in relation to other court users as well:-
“73. The attempted perversion of justice is the very antithesis of parties coming before the court on an equal footing. The matter has become hugely more expensive (to an extent we did not appreciate until we were told when application was made for a freezing order that the amount of the appellants’ costs overall and on a solicitor and own client basis may be in the region of £1.5m). The judge commented at the beginning of his judgment that the hearing had run for 29 days greatly exceeding the parties’ estimate. The original estimate was three weeks and we were told another week to ten days would be required to conclude the matter even on the limited basis that the judge would still permit. The judge did not, however, treat cost and time as elements of the overriding objective. He did not appear to allot to the case an appropriate share of the court’s resources while taking into account the need to allot resources to other cases. In this day and age they are elements of case management which must not only be seen to have been placed in the scales but also given due and proper weight when assessing how justice is to be done to the parties and to other litigants. The balance must be struck so that the case is dealt with in a way which is proportionate to the amount of money involved in the case, its importance and complexity and the financial position of the parties. Mr Tobias stood to gain much had his fraud gone undetected. He was seeking on behalf of the minority shareholders to wrest control of the company from the majority and he persisted in that claim even to the point of his cross-appeal. He bolstered his claim by what the judge found to be a campaign of forgery and, more importantly, the judge was not satisfied with the explanation given for it. He found:
‘In his evidence Nigel sought to give the impression that his forgeries came about as a result of an impulsive moment of madness flowing from his disappointment that his case was not adequately supported by the documents. In my judgment, so far from that being the case, it is apparent that the process of forgery, which Nigel admitted to, was sophisticated and must have taken some time to complete including the special manufacture of headed note paper of the defunct Tobias family company. But for the slip up with relation to the telephone number shown on the headings it would, in all probability, not have been discovered.’
Any notion that this was a petitioner coming to the Court of Equity with clean hands is utterly dispelled by the devastating conclusion in para 44:
‘I am not satisfied that I have received from Nigel a truthful picture of the circumstances of the forgeries which he admits.’
74. This was, therefore, a flagrant and continuing affront to the court. Striking out is not a disproportionate remedy for such an abuse, even when the petitioners lose so much of the fruits of their labour”.
149 It is not excessive to describe SM’s conduct in producing and relying upon forged documents to the extent that he has and the consequential perjured evidence and false disclosure of documents as being a flagrant and continuing affront to the court.
150 If I was dealing solely with misconduct by SM I would have had no hesitation in striking out the entirety of his claims. He has not made the case impossible but he has very nearly made it so. To remove from the Judge’s tools for assessing where the truth lies all significant contemporaneous documents is a very serious act of misconduct. He has made my task virtually unmanageable.
151 That is not however the end of the matter. In this case the Defendants themselves have also been guilty of forging documents and perjury. It is not as extensive as that of SM’s but it is equally pernicious. The difficulty I have is with the application of an appropriate sanction. With regard to a Claimant the sanction is clear; it is the dismissal of the action which it was sought to bring with the use of illegitimate material. If SM’s action is struck out then striking out the Defendants’ Defence does not achieve anything because they have no claim to meet. I could not even if I struck out the Defence prevent a Defendant from having the right to challenge a case without calling any evidence itself. That is a normal consequence when a court strikes out a Defence. The hearing has to be listed so that the Claimant can prove his case.
152 Where as in this case all the main parties are guilty of forgery and perjury striking out the claim in effect awards victory to a wrongdoer Defendant. It would be unjust (if that is the appropriate word for a forger and a perjurer) if SM’s claim is struck out with no corresponding effective sanction applied to the Defendants. There may be cases where doing that can achieve a fairness as between misconducting parties. It is possible to think of examples where that might be effective. However in the present case the Defendants are in possession of the shares which form the primary claim. Simply putting an end to an action from both sides’ points of view leaves them in possession of the shares. These are particular assets which they have sought to maintain possession of by forgery and perjury. Now it can be said that the reason why they succeed despite their forgery and perjury is because SM fails because of his own forgery and perjury. He is therefore the victim of his own misconduct and one should not weep over it.
153 Putting it another way if both sides have their ability to adduce evidence removed because of their misconduct one falls back on the principle that the case is decided on the basis that the party on whom the burden of proof lay has failed to satisfy that burden see Rhesa Shipping SA v Edmunds [1985] 1WLR 948 at 951 B-D.
154 The easy course given the parties conduct would be simply to decline to adjudicate the case and strike out all the pleadings and then leave SM with no remedy. I have come to the reluctant conclusion that that in itself would not be an appropriate action in the present case. At the end of the day everybody (however badly they perform) is entitled to have access to the courts to have disputes resolved. If they abuse their right to access then the court has sanctions. However when all abuse their access as in the present case punishing one to a greater extent than the other would itself in my view create an injustice. I have accordingly therefore come to the reluctant view that despite all my misgivings and (I have to say) the great distaste I feel about this that I must attempt to resolve all the issues doing the best I can but without a great deal of assistance from testimony of the main players and with the need to adopt an extremely cautious approach to contemporaneous documents. Ultimately if I am unable to decide an issue on the uncontaminated material that is left to me that issue will be decided on the burden on proof. The parties will then suffer the consequences of their actions. I have made clear to the parties during the course of the trial that it is extremely likely that I will take further action over their misconduct and I intend so to do”.
  1. I refer in particular to paragraph 151.
  2. The necessity of a further hearing was demonstrated by the exchange that took place between Mr Burns and myself when it became clear that in taking the proffered £54,000 there was no consideration in any coherent way of what the £54,000 was for (i.e. in the terms of relief in the Amended Petition) and how that was to impact as regards the ownership of the LLP and any possible transfers and the final fatal failure to consider the Counterclaim.
  3. There are other default procedures for example CPR 12 where a party fails to file an acknowledgement. There the courts have long allowed a party to seek such judgment as is available to it on the pleadings. However as CPR 12 sets out where the relief sought goes beyond the monetary claims (like CPR 3.5) consideration must be given to all claims that are being sought and whether or not some are being abandoned. The fact that Mr Burns was quite unable to tell me what aspects of the Amended Petition remained extant after the £54,000 award was made demonstrates the fundamental flaw in the matter as it proceeded before the learned Registrar.
  4. For all of those reasons I regret to say that the learned Registrar in an understandable desire to bring a speedy conclusion to these wasteful proceedings fell in to error and the appeal must be allowed. The Appellants attended what was a CMC for directions and left with a judgment of £54,000 plus costs against them. This is unjustified and procedurally unfair.

AND FINALLY – RESOLUTION WILL BE BETTER THAN LITIGATION

 

  1. I urge the parties to resolve this dispute. It is extremely unlikely that there is any money to be had for either party and they really ought to consider in my view a liquidation on the basis that the LLP is insolvent. The examination of the cost of the Claims and Counterclaims in respect of the alleged misconduct is likely to involve if the parties persist in litigation where the only issue is to avoid a liability for costs. Now in my judgment is the time for the parties to contemplate resolution of this unfortunate dispute. If the parties are unable to do that then at the same time as the application for permission for relief against sanctions the Registrar should make directions in the event that he dismisses the application for relief as to how the debarring order takes effect. In the alternative if he gives relief from sanctions he should then consider what further directions are needed for the prosecution of the Petition and the Counterclaim.”

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