England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Rolls Building
		18th January 2017

MASTER MATTHEWS:

1. There are two applications before the court. The first in time is an application by notice dated 14^th November 2016 on behalf of the claimants for judgment in default on the claimants' claim against the first defendant for the amount specified in the Particulars of Claim and also for an order that the first and second defendants be debarred from defending other claims in the claim form under s.423 of the Insolvency Act 1986. I should say that, although there are also three other defendants, they have not been served and they are not involved in this present application. The application in supported by a witness statement of Mr. William Christopher, dated 14^th November 2016, plus one exhibit. There have also been subsequent witness statements.
2. The second application is a much more recent affair. It is made by notice dated 11^th January 2017, but only issued here at the court on 16^th January 2017. It is on behalf of the first and second defendants. Under s.3, "What order are you asking the court to make and why?", it says: "To apply for an order for relief from sanction rule 4.6 and/or extension of time to file the defence". That application is supported by a witness statement of Mr. Jonathan Munro, a solicitor, dated the 13^th January 2017 together with one exhibit.
3. These two applications are made in the context of a claim which was issued by the claimants against the defendants by claim form issued on 4^th October 2016. In broad terms, so far as the first defendant is concerned, the claims are for sums due under investment and loan agreements together with necessary accounts and enquiries in respect of sums found to be held on trust and any breach of trust involved and compensation for such breach of trust. As against the remaining defendants (the second, third, fourth and fifth defendants), the claims are for orders pursuant to s.43 of the Insolvency Act 1986, on the basis that transfers of assets have been made by the first defendant to those other defendants for the purpose of defeating claims by creditors.
4. As I say, the third, fourth and fifth defendants (the trustees of three trusts) have not been served. The reason for that is that the claimants have so far been unable to establish the identity of the trustees of those trusts, despite having made several requests of the first defendant by his various solicitors.
5. The claims were not launched suddenly in October 2016. There is a long history of correspondence between the parties following a business relationship between them. Ultimately, that business relationship soured and, in February 2015, long letters before action were sent on behalf of the claimants by their then solicitors to the first and second defendants. Solicitors were instructed, Addleshaw Goddard, but on behalf of the first defendant only. Correspondence was carried on with Addleshaw Goddard from March 2015 until November 2015, when the first defendant changed solicitors to Gunnercooke. Gunnercooke then took up the baton and continued with the correspondence through until August/September 2016, when the first defendant changed again, this time to Jonro Solicitors. It is Jonro who are now on the record for the first and second defendants. But the point I am making is that this is a well-trodden path. The arguments between the parties have been expressed in correspondence and no one could have been taken by surprise when the claim form was ultimately issued in October 2016.
6. The claim form and particulars of claim were served on the first and second defendants by first class post. That would mean that they were effectively served on 7^th October 2016. I think the original certificate of service said 6^th October 2016, but the error was corrected subsequently. Therefore, the last date for the filing and service of a defence on behalf of the two defendants would have been 3^rd November 2016.
7. The correspondence between the parties continued after the proceedings had in fact been served. It is clear from para.9 of Mr. Munro's witness statement, to which I have referred, that Mr. Munro realised by 1^st November 2016 that he would need an extension of time for the service and filing of the defence and any counterclaim. However, he did not actually ask for an extension of time from the claimants until 15^th November 2016, when he sent an email in that respect to the claimants' solicitors saying:

"Having accepted service on behalf of the defendants and acknowledged the above claim at the court, whilst preparing a formal response to the court and in view of the time, we kindly ask for an extension of time to file the defence under CPR 2.11."

The acknowledgment of service was actually filed by Jonro on 21^st October 2016.

8. The defendants' request for an extension of time was in fact refused by an email in response, sent on 22^nd November 2016. However, by then the claimants on 14^th November 2016 had already issued their application notice for judgment in default of defence and debarring the other defendants on the s.423 claim. So the request for an extension on 15^th November was already too late.
9. The request for an extension was, of course, as I have already said, accompanied by the realisation on behalf of Jonro that there was a time difficulty. Consequently, it appears that Mr. Munro obtained from his clients their signatures to a defence and counterclaim which he sent off to the court on 16^th November 2016, where it was not received and stamped until 21^st November 2016.
10. So the position is that the defence and indeed the counterclaim (which is hardly worth the name, being so poorly drafted) were received by the court on 21^st November 2016, some eighteen days out of time. However, Jonro did not serve a copy of this defence and counterclaim on the claimants. It appears from Mr. Munro's evidence that he assumed that the court would do this. However, there is absolutely no basis for such an assumption, and any experienced litigation lawyer would know that that is not what happens. Nevertheless, as I say, no copy was sent by Jonro to the claimants' solicitors.
11. What makes the matter much worse, however, is that Jonro did not even inform the claimants' solicitors that a defence and counterclaim had in fact been filed. Had they done so, they would have obviously precipitated the question as to what should be done about the application which had been issued by the claimants' solicitors for an order for default judgment and an order debarring the other defendants.
12. The position appears to have rested there, in the sense that, although Jonro had filed a defence and counterclaim, they did not seem to take any steps to deal with the application by the claimants' solicitors. Nor did they consider or at any rate get around to producing any application of their own for an extension of time or for relief from any sanctions. Mr. Munro told me today that he thought about this but the Christmas holidays "got in the way". Therefore, it was not until 16^th January 2017 that the second application to which I have referred was actually issued by the court. That is something like two and a half months almost after the due date for filing and serving the defence had expired.
13. In these circumstances, Mr. Majumdar for the claimants says that I should not grant any relief from sanctions. He says that, to adopt or follow the well-trodden path laid down in the Mitchell and Denton cases, this is not at all a trivial breach of the rules. Instead, this is a serious and significant breach. I have to say that I agree with him. It is. It is fundamental that the parties should either adhere to the timetables which are laid down by the rules or they should seek an extension of time. In this case, Mr. Munro did not seek an extension of time until well after the period had expired and he did not issue an application when he was refused until January 2017. So I conclude that it is a serious or significant breach of the rules. It is not a trivial breach (in this context) of missing a deadline by one or two days, or something like that.
14. The second question is, What is the explanation for the breach's having occurred? I have to say that, if it is not part of a deliberate campaign on the part of the first defendants via solicitors to slow down the litigation, then it can only be, in my view, the product of incompetence on the part of the defendants' solicitors. I say this because everything that they have done has seemed to be either in ignorance of the rules, or worse. Thus I conclude that there is no good explanation, no adequate or satisfactory explanation, for the failure to file the defence within time.
15. So I come to the third and final stage in the procedure. That is to evaluate the whole of the circumstances of the case to say whether or not, in all those circumstances, it is appropriate to grant relief from sanctions. I bear in mind the provisions of Rule 3.9 of the Civil Procedure Rules which provide, so far as material, that:

"On an application for relief from any sanction imposed for a failure to comply with any Rule, Practice Direction or Court Order, the court will consider all the circumstances of the case so as to enable it to deal justly with the application, including the need:

(a) for litigation to be conducted efficiently and at proportionate cost; and

(b) to enforce compliance with rules, practice directions and orders."

16. In the present case, there is no doubt that the litigation so far has been conducted, at least so far as the defendants are concerned, extremely inefficiently, and at disproportionate cost. So much of what has happened has been simply wasted and there has been scant compliance with the rules. This is not, however, I may say, the worst possible case. There are, unfortunately, much worse cases that have come before the courts, and I must not lose all sense of proportion in dealing with it.
17. I have thought long and hard as to whether it is appropriate to say that this behaviour is so far beyond the pale as to be unrelievable, but I have come to the conclusion that, putting my hand on my heart, I cannot say that it is that bad. It is rank incompetence. It is professionally unacceptable. But, at the end of the day, the inconvenience and the difficulties which it has caused can be dealt with in other ways, particularly on the question of costs. And any future lack of compliance with the rules will certainly be viewed through less generous eyes.
18. Therefore, I think it is not an appropriate case for the application of sanctions. I will accordingly extend time for the first and second defendants to file their defence and counterclaim to the 21^st November 2016, and I will extend time for service of the defence and counterclaim on the claimants to 4pm this afternoon.
19. I make one other point about service of the defence and counterclaim, and that is this. I have seen two different versions of the defence and counterclaim. The one for which I am giving permission is the original one, that is to say the one which was filed at court. I am not giving permission in respect of any amended document. That is clear.
20. Therefore, the result is that, albeit with some degree of reluctance, I dismiss the application made by the claimants and, again, with some reluctance, I allow the application of the defendants.
_________________