When an Unless Order means no less

Posted by Paul Caldicott on
Blake Morgan LLP is currently instructed on behalf of the Petitioners in unfair prejudice petitions issued under section 994 of the Companies Act 2006 in respect of three linked companies.

An application in the Petitions was recently heard in the High Court before His Honour Judge Monty QC on 13 November 2014 to determine whether the Respondents had failed to comply with the terms of an Unless Order and, if so, whether their Defence should be struck out.  In the event that the Court determined they had failed to comply then the Respondents were seeking relief from sanction.

The background to this application was a Part 18 Request served on behalf of our clients on 3 September 2013.  Despite initially agreeing to provide a response to that Request, the Respondents  changed their position and an application was initially issued to compel a full response.

That application was due to go before the Court in March 2014. However in advance of the hearing the Respondents agreed to comply and an Order was made by consent such that the Respondents were required to provide a full response to the Request by 21 March 2014. 

They failed to do so.

On 4 April 2014 the matter came back before the Court at which point Mrs Justice Rose made an Unless Order requiring the Respondents to file and serve their Response to the Request by 22 April 2014, failing which their Points of Defence be struck out.

Whilst on 22 April 2014 the Respondent’s did file and serve a purported Response, it was deficient.

This led to the hearing on 13 November.

On behalf of the Respondents it was submitted that the Response was adequate. 

However this was rejected by HHJ Monty QC who was also critical of the way in which the Petitions had been conducted by the Respondents.

He held that the Response was plainly incomplete in that it had omitted to respond to many of the original requests and, further, where responses had been provided they were often inadequate. Subject to the Respondents' application for relief from sanction, the Unless Order had accordingly 'bitten' and the Respondents defence stood struck out.

The Court accordingly had to determine the application for relief.

On an application for relief from sanctions under CPR r.3.9 the Court has to consider the seriousness of the breach, the reason for the breach and all the circumstances to enable the court to deal with the case justly in accordance with the decision in Denton v TH White Ltd [2014] EWCA Civ 906.

On the particular facts here the Court found that the failure to reply adequately was a serious and significant default and disrupted the litigation process.  HHJ Monty QC found that the default had occurred because the Respondents had decided to answer only those questions that they considered to be valid and appropriate, but that had not been open for them to do. There was accordingly no good reason for the breach.

In relation to the overall circumstances, he found that the evidence fell short, but not far short, of establishing a course of conduct designed to delay the hearing, but delay had been caused.

However taking all matters into account, and placing weight on r.3.9(1)(a) and (b), HHJ Monty QC found that relief should be granted.

He held that an insistence on enforcing compliance with Court orders where there was no effect on the proceedings was not the right approach in the light of Denton, and would ignore the need to deal with cases justly. It would not be just, fair or proportionate to refuse relief, which was accordingly granted on two conditions. First, the costs of the hearing were to be paid by the Respondents on the indemnity basis.  Secondly, the Respondents were required to serve a full and complete response to the Request within twenty one days. They accordingly had a second (or rather fourth!) bite of the cherry.

This decision is the latest in a raft of cases relating to the implementation of the three stage test for applications for relief from sanctions laid down by the Court of Appeal in Denton and applied in subsequent cases.

The overarching message is that there is undoubtedly a greater incentive on parties to avoid being in a situation where they have to seek relief. However when that is necessary, it is clear that the Courts now have more flexibility as regards approaching applications for relief from sanctions.

The team at Blake Morgan LLP has extensive experience of bringing and also defending  unfair prejudice petitions. If you'd like to discuss a specific issue or case please call 029 2068 6181 to speak to Paul Caldicott.

See: Griffith & Others v Gourgey & Others [2014] EWHC 4440 (Ch)

About the Author

Paul is a specialist corporate restructuring and insolvency Solicitor in our Business Support & Insolvency team based in Cardiff.

Paul Caldicott
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