England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CHANCERY DIVISION)
ON APPEAL FROM THE COMPANIES COURT
(MR JUSTICE LEWISON)

		Royal Courts of Justice Strand, London, WC2A 2LL
		9th June 2011

Lord Neuberger, MR:

1. We have before us several applications for permission to appeal. All but one concern case management decisions arising out of a petition issued by Mr Ivan Ng, the respondent to the renewed applications. On 10 October 2007 the petition was presented under section 994 of the Companies Act 2006, seeking an order under section 996(2)(e) that the appellant, Mr Stephen Crabtree, buy Mr Ng's shares in a company called the Natural Duvet & Pillow Company Limited ("the company") at a price fixed by the court.
2. The combined effect of the orders against which Mr Crabtree seeks permission to appeal is essentially to prevent Mr Crabtree from raising issues of fact or relying upon any evidence of disputed fact at the trial of the petition which is scheduled to take place in the next two weeks.
3. There is also, separately, an application for permission to appeal against a "show cause" order made by Peter Smith J during the course of these proceedings in relation to one application against counsel, who appeared before Mr Crabtree which could, if pursued, result in the making of a costs order against him.
4. This is an ex tempore judgment at the end of a hard fought argument. It is highly desirable that this matter is disposed of today so that the parties know where they are, particularly so that the trial can proceed . Accordingly, I hope that I will be forgiven for somewhat attenuating the history during the course of the judgment.
5. The petition was due to come on for hearing in before Mr Timothy Brennan QC on 14 October 2008, but it in fact came before Peter Smith J on 22 October. He took the view that it was not ready for trial, principally because the status of a debt said to be owed to the company by the Zhenjiang Liuqiao Feather Company Limited ("ZLF") was non-existent, so he adjourned the hearing ordering, among other things, the production of further evidence, the joinder of ZLF, and an attempt to mediate. The parties were able to agree the amount of the ZLF debt and a consent order was made recording that.
6. On 6 May 2010, a further hearing took place before Peter Smith J for directions, with Mr Ng being represented by counsel. The Judge took the view at the hearing that, with the ZLF debt agreed, it should be relatively easy to agree a valuation of the shares, describing it as in his view, "a purely arithmetical exercise".
7. In due course, an order was agreed whereby Mr Crabtree would buy Mr Ng's shares in the company at their fair value as at 10 March 2005, to be determined by the court if it could not be agreed.
8. On 10 June 2010 there was a hearing at which Mr Crabtree appeared in person, and at which Peter Smith J ordered him, by paragraph 2:

"…by 4 pm on 8 July 2010 to file in court and serve upon [Mr Ng] a list of the factual issues he wishes to raise at the trial and the evidence already disclosed which he wishes to rely upon."

Paragraph 8 of the order said:

"Save as provided in paragraphs 2 and 3 of this order, no evidence of fact to be adduced at the trial without the permission of the court."

And for permission of the court they were at liberty to apply.

9. The matter came back again before Peter Smith J on 1 March 2011 on the application of Mr Ng. Mr Crabtree explained that he had not been able to obtain files because there was a lien over them asserted by his former solicitors. Peter Smith J made it plain that, while he would grant an extension for compliance with his earlier order, there would be a debarring order against Mr Crabtree if he failed to comply.
10. In particular, the Judge ordered that if, by 4.00pm on 4 March 2011, Mr Crabtree did not comply with paragraph 2 of the order of 10 June 2010 by filing in court and serving upon Mr Ng a list of the factual issues he wished to raise and the evidence already disclosed on which he sought to rely at the trial, he should be debarred from relying upon any evidence at the trial of the petitioner. Paragraph 2 of the order made by the judge on 1 March said:

"Paragraph 1 is a final order and no further extension of time to comply with paragraph 2 of the order of 10 June 2010 shall be granted."

11. On 31 March 2011, an application was made by Mr Ng seeking an order that, save in relation to the ZLF debt, Mr Crabtree be debarred from raising any issues of fact or relying on evidence of disputed fact at the trial. Peter Smith J was prepared to give Mr Crabtree a further opportunity to make an application to get his house in order, although this would involve inconvenience to Mr Ng's counsel. So he adjourned the application to 20 April and granted Mr Crabtree permission to issue an application for relief from sanctions, and required him to provide a list identifying the full particularity of all the factual issues on which he intended to rely, and all the evidence on which he intended to rely, and required any such application to be issued no later than midday on 14 April. In fact the application was issued a few minutes late, and so an application had to be made to the judge, which was heard on 20 April for relief from sanctions and permission to amend the list of factual issues.
12. Peter Smith J took what may be fairly described as an exceptionally dim view of what followed. He was asked to recuse himself and he was asked for leave to appeal the order of April 2011. He took the view that, in light of the fact that the hearing was due for June 2011, it was sensible for him to recuse himself, which he did. However, he took the view that there was good reason to require counsel appearing on that application for Mr Crabtree to show cause why an order for wasted costs should not be made against him in respect of that hearing.
13. Having recused himself, Peter Smith J directed that the application for relief from sanctions be heard by Lewison J, and, on 4 May 2011, the application for relief from sanctions came before Lewison J, and he decided to refuse it.
14. It is fair to Mr Crabtree to record that he had not been completely inactive during March. On 14 March, he had put in a so-called list of factual issues and evidence which he intended to rely upon at trial pursuant to paragraph 2 of the order of 1 March 2011. I will refer to that as the "first list". Later, there was an amended list of facts and issues which plays no part in these proceedings but was prepared by counsel and dated 7 April 2011, and put before the court; I will refer to that as the "second list". Finally there was what is called a first respondent's amended list of factual issues, which I will refer to as the "third list", which is dated 14 April 2011.
15. Following Lewison J's decision the various orders to which I have referred were subject to applications for permissions to appeal, namely 10 June, 1 March, 8 April and 20 April, and there is also an application for permission to appeal, as I have mentioned, against the wasted costs order.
16. I shall deal with the wasted costs order first. It is perhaps understandable that Peter Smith J became bemused or worse at what had happened at the hearing before him when he was asked to recuse himself with little if any notice, when the evidence before him was provided at a very late stage; in view of the history of the matter, he may well have thought that he was being mucked about, to use the vernacular. However, it seems to me that there is considerable force in the argument put forward by Mr Parker, who has advanced his submissions very succinctly and clearly, as to why it would be right to take what I must emphasise is the thoroughly exceptional course of allowing an application for permission to appeal, and then granting the appeal, in relation to a show cause wasted costs order. Normally, almost invariably, it would be wrong for this court to entertain an application for permission to appeal or to grant the appeal in relation to such an order; it is a far more efficient use of time for the lawyer concerned to show cause and for the application for wasted costs to be dealt with on its merits, and only then for this court to be troubled.
17. In this exceptional case I think it is appropriate to take a different course. First, the matter is before this court anyway in the form of the four applications for permission to appeal against management decisions, to which I have referred; secondly, it is fair to say that it was on the initiative of the court that the show cause order was made; thirdly, the court should have given particulars of the allegations which were to be made against counsel, and this was not done; fourthly, if we were not to entertain the application for permission to appeal there would still be further costs incurred because it would have to been sent back for the judge to do that; fifthly, it seems to us that it would be disproportionate to make a considerable wasted costs order: at the most £5,000 would be involved. put before the court; sixthly,, it does seem to us that -- without wishing to prejudge the issue because it is unnecessary to do so -- with all due respect to the judge, the case for a wasted costs order on the facts in this case does look very weak; finally, the person who would benefit from the wasted costs order, namely Mr Ng, does not oppose the appeal and did not support the wasted costs application. It would be unfair on the judge if I were to say that Mr Boardman, who appears for Mr Ng, opposes the wasted costs order, but he certainly does not support it.
18. In those rather exceptional circumstances I think it would be right to allow the application for permission to appeal against the order, even though it is only a show cause order, and to allow that particular appeal.
19. Turning now to the other aspects, it seems to me that any attempt to challenge the orders made by Peter Smith J on 10 June, 1 March, 8 April or 20 April must fail, save to the extent indicated on the wasted costs order, and therefore should not be granted permission.
20. Mr Clayton QC, who appears with Mr Marshall for Mr Crabtree, accepts that neither those orders nor the order made by Lewison J were disproportionate or inappropriate in themselves, and in my view he is entirely realistic in that. His point is that insufficient consideration was given to the fact by the judge, and indeed by Mr Boardman, to the fact that at those hearings Mr Crabtree was a litigant in person. Given that this is an application for permission to appeal which is being rejected, it is inappropriate for me to go into the precise nature of the duty of counsel and indeed of the court to a litigant in person. All I need say is that, as has been emphasised during argument by both Lady Justice Arden and Lord Justice Carnwath, is that the degree of latitude, and the assistance, to be given to a litigant in person at a hearing is very case-sensitive: among other things, it depends on the litigant in person; it depends on the issues; it depends on the extent to which he has already had assistance.
21. In this case, Mr Crabtree is a company director, but a non-lawyer; he is somebody who the transcript shows is capable of looking after himself, although obviously he is not an expert in law, let alone in court proceedings. Without going into the details of the allegation raised by Mr Clayton, I should simply say this. I am quite satisfied that while, as often happens on reading a transcript, one can see things that might have been better left unsaid which might better have been said rather differently, with the wisdom of hindsight, I can see nothing in the overall treatment which Mr Crabtree received which can in any way be criticised.
22. Arden LJ reminded counsel that, when considering Article 6 and indeed considering any question of fair trial under the common law, one has to look at the matter overall, and overall it seems to me that Mr Crabtree has nothing to complain of.
23. In my view, there was nothing in the orders that were made that could be objected to. He was given a very good opportunity and a very fair opportunity to present his case. As Carnwath LJ pointed out in argument, looking at the evidence put in by Mr Crabtree, there is no suggestion that he was traumatised by what happened in court or incapable of acting as he wanted or saying what he wanted. As Lewison J said in his judgment, his explanations for not complying with the orders of Peter Smith J really do not bear examination.
24. The difficult issue is the extent to which we should interfere with the judgment and decision made by Lewison J. There are two points in that connection. The minor point concerns one paragraph in Lewison J's order. The major issue is whether we should ourselves accord some relief to Mr Crabtree.
25. The order Lewison J made was:

"2. Save as to the existence of the ZLF debt which is to be proved by production of the order of 25 November 2009, the First Respondent is debarred from raising any issues of fact or relying upon any evidence of disputed fact at the trial of the petition.

3. No witness of the fact shall be heard at the trial of the Petition. The parties shall be restricted to calling the experts whose reports have already been filed and served. The evidence of the experts shall be limited to that which their expertise properly enables them to give. Any evidence of disputed fact contained within the experts# reports shall not be admitted."

26. During argument, Carnwath LJ pointed out to Mr Boardman that it may be that in fact nothing is added to the order by paragraph 2 and Mr Boardman agreed. On that basis I think it sensible to take out paragraph 2. I intend no criticism of the judge thereby, but if there is a paragraph in an order that adds nothing and is of no benefit to anybody it is better to take it out on the basis that it will either be useless or, worse, do mischief.
27. The more difficult issue concerns whether or not Mr Crabtree should be allowed to put in evidence to support certain issues. Initially he wanted to support his case on all 41 issues, but during the course of the latter part of the argument today, in what was a little bit like an auction, Mr Clayton suggested that what he would really limit himself to would be items 8, 11, 12 and 13 in the third list.
28. The basis on which Lewison J proceeded, and the basis upon which Mr Boardman invites us to proceed, is that, if one looks at the first list, which is the only document put in before the debarring took effect, Mr Crabtree wanted two practical issues, and only two issues, to be considered, namely:

"The [ZLF] liability [and] quantum and crystallisation of the [ZLF] liability."

29. Apart from the fact that that is what he said in the first list, this submission is supported by the fact that Mr Crabtree included in the first list this observation:

"In order to assist the court [he] states the issue in this case is now limited to the value, if any, that should be attributed to the petitioner's shares in [the company] as at March 2005. It is agreed that a 'number crunching exercise' is all that is now required by the trial judge to determine the value of the shares, if any, and essentially the parties are at a variant on the methodology and basis upon which the valuation has been undertaken by their respective experts."

30. Thus, at least so far, it does look pretty clear that the proposed factual issues were very limited indeed. During the expansion of the explanation relating to the ZLF liability, the first of the two issues, there was this in the first list:

"There are numerous accounting issues why the ZLF liability was treated in the manner that it was in the accounts and those reasons were expanded upon at trial. Essentially, the subsequent effect of the ZLF liability and additional losses incurred previously [by the company] did not feature in the accounts until after 2005. It is for that reason that events pre and post March 2005 need to be considered by the court."

31. Then the first list goes on to say that, in support of the factual issues, Mr Crabtree will want to rely upon certain evidence, and then right at the end of his statement he says again he would want to rely in his case "in its totality" on certain evidence which consists of a number of witness statements. Those witness statements include the expert accountant's report of Linda Chung which was prepared in 2008. It is common ground that Linda Chung and her report will be before the court as expert evidence going into some detail as to why, in effect, the shares in the company as at March 2005, despite the apparent value according to the filed accounts, was in fact nil. In addition, there are a number of other witness statements on which Mr Crabtree wishes to rely, including two of his own, one of Mr Marlow, one of Mr Sullivan and one of Mr Johnson. It is these that are now in issue.
32. Mr Clayton would like to put in those witness statements in order to support his case on four items in the third list, which are (i) the level of trade creditors that would have "prompted enquiry"; (ii) the significant stock holding which the company had, which had been increasing; (iii) an investigation of the stock position which would have revealed a position that would have shown that the company was operating at a gross loss, and (iv) the contention that 2006 was not a rogue year.
33. It seems to me that if we were to accede to Mr Crabtree's argument and permit him to put in the statements, we would be reversing, at least to a substantial extent, Lewison J's decision. Lewison J's decision was based on a very careful judgment in which he considered the various factors under CPR3.9 and concluded that he would not permit any further evidence to be adduced.
34. Decisions on case management, and whether to enforce debarring orders, and on relief against sanctions, are pre-eminently for the judge at first instance hearing the case and making the decision. Unless we, as an appellate court, are satisfied that the judge has gone seriously wrong in principle or has been under some misapprehension or some proposal exceptionally can be put forward which was not put forward before him and it should be entertained by us, it is simply inappropriate for us to interfere with his decision.
35. In this case, Mr Clayton makes the point that much of the evidence which was sought to be relied upon, indeed all of it, existed in 2008, and was ready for the proceedings when they came on before Mr Brennan and then a week later before Peter Smith J, only to be adjourned and which now, three-and-a-quarter years later, are still unresolved. That is perfectly true, but it is clear from the terms of the order that I have read that the court was well aware of that fact.
36. At the time that those witness statements were made, the issues between the parties were also very much concerned with Mr Crabtree and Ng's respective conduct as directors of the company and between themselves. Those issues are no longer, of course, relevant save possibly on one view on the issue of valuation and then only to a limited extent. The fact that the evidence was there since 2008 seems to me to have been a factor which was in Peter Smith J's mind and no doubt in Lewison J's mind. I do not think that justifies interfering with the order.
37. Not all the evidence may have been before Lewison, in the sense that he did not have the files, may be true, and I am prepared to assume that it is so, as Mr Clayton tells me it is. But of course the parties were before him with their papers and if anybody had wanted to show a document to Lewison J they could have done.
38. More importantly, it seems to me that the whole point of Peter Smith J's directions was that, if there were going to be serious issues of fact, then there should be proper notice given by Mr Crabtree to Mr Ng, because Mr Ng was simply relying on the accounts and that was where his evidence consisted of, so that Mr Ng would have an opportunity to deal with those disputes. If at this very late stage, or at the very late stage before Lewison J, that evidence was to come in, there would be a strong possibility, indeed I would have thought a near certainty, of the hearing due this month being lost, which in light of the history of this case would be worse than lamentable.
39. Mr Clayton, understandably, places great weight on the importance to Mr Crabtree of having a fair trial and his Article 6 rights, and of course they are an important factor in one's mind. So are the rights of Mr Ng, who has prepared himself for the hearing and no doubt incurred significant expense. Also, there are the interests of other litigants and the public interest in litigation being proceeded with efficiently.
40. There is no doubt, it seems to me, that the evidence which is sought to be relied on of Mr Crabtree, Mr Marlow, Mr Johnson and Mr Sullivan, is secondary evidence which would be of limited value, and which would almost certainly require the primary evidence to be searched out, in all likelihood by and on behalf of Mr Crabtree. Furthermore, I note that on each of the four issues that I have identified from the third list, the evidence of Ms Chung will play an important part.
41. It is clear that much of the case of Mr Crabtree is not in relation to the four issues identified by Mr Clayton. In truth his case would be essentially based on inference from the accounts and inference from the records. Insofar as the accounts are available, the inferences can be made by an accountant and, judging by Ms Chung's report, she is a very able accountant and, insofar as they are based on the records themselves, those records are not available and, it appears, would not be available even if the statements which Mr Crabtree wishes to put in could be put in.
42. In my view, although one can well understand Mr Crabtree has a feeling of injustice in not being able to rely upon evidence that he wishes, the sad truth is that he is the author of his own misfortune. In my view, once it is appreciated that (i) Peter Smith J made no error of principle and was entirely fair in the orders he made, (ii) Lewison J appropriately weighed up the relevant factors, (iii) Ms Chung is going to be able to give evidence and has prepared a very full witness statement dealing with the issues which Mr Clayton is concerned about, much of which on any view turns on expert view, and (iv) it is accepted by Mr Boardman that Ms Chung can give this evidence, it seems to me that the judge, who no doubt will employ good sense and practicality when deciding how far to go on issues which might be characterised or expert or fact, because they do shade into each other, I think it would be quite wrong for us to interfere with Lewison J's order, save to the extent of deleting paragraph 2 because, as I say, it adds nothing.
43. On the applications for permission to appeal on what I call the case management issues, I would dismiss the applications, save that I would amend Lewison J's order by deleting paragraph 2. On the show cause order made by Peter Smith J in relation to the wasted costs, I would allow the application and allow the appeal.

Lady Justice Arden:

44. I agree with the judgment of the Master of the Rolls. If there had not been the appalling delays and disregard of court orders already in this case, I think I might have been minded to permit the evidence of facts to be relied upon in support of issue 12 in the third list, as defined by the Master of the Rolls, since it might have a substantial effect on the valuation exercise and may arguably have been within a document served in time. But on reflection, I think that the justice of the case is met by the order which the Master of the Rolls proposes.
45. On reflection, I think that Lewison J's reasoning, in the passage within paragraph 21 of his judgment, taken up by Mr Boardman for the respondent in his submissions, that Mr Crabtree had failed to give disclosure of the accounting records, is a very significant reason for not altering the order in that regard. The respondent would, if the investigation of the stock records was to be permitted, be entitled to take up the question of disclosure by the company of the accounting records and to pursue it, and if they did so, that would delay this already delayed trial.
46. If there were any doubt about the justice of a particular course, I think that on an application such as this, the respondent must be entitled to the benefit of the doubt, given his significant non-compliance with court orders, and there is doubt because of the lack of clarity in the paragraph in the first list, which the Master of the Rolls has already read out.
47. In any event, the point about the items within those lists was not a point on which Mr Clayton placed reliance in the presentation of his opening of this appeal. It arose out of questions from the bench.
48. We are not, on this appeal, really concerned with the practice of making buy-out orders on unfair prejudice petitions, but the moral in this case may be that where it is agreed that shares should be bought out at fair value, the parties should not agree upon the valuation on such a wide open-textured basis as fair value until they have agreed on directions to the valuer, whether such directions are to be incorporated within the order, or in some other way, so as to define how fair value is to be ascertained.
49. On the question of the wasted costs order, I agree with all that the Master of the Rolls has said. It is, however, a relatively unusual costs order because it was based on points which the judge in the hearing was concerned to pursue and in those circumstances, in future, consideration might have to be given to the question whether the further application for a wasted costs order once the process had been started should be heard by a judge other than the judge who made the wasted costs order: see generally Cipriano v Cyprus Application Number 77/97 at 91.

Lord Justice Carnwath:

50. I also agree with the Master of the Rolls' judgment.

Orders: Application granted for wasted costs order.

Appeal allowed for wasted costs order.

All other applications refused.