Jersey Unreported Judgments

Loan - appeal against the decision of the Master dated 1st November, 2011.

[2012]JRC035

Royal Court

(Samedi)

15 February 2012

Before     :

J. A. Clyde-Smith, Commissioner, and Jurats Fisher and Milner.

 

Advocate M. H. D. Taylor for the Plaintiff.

Advocate A. D. Hoy for the First, Second and Fourth Defendants ("the defendants).

judgment

the commissioner:

1.        This is an appeal by the first, second and fourth defendants against the decision of the Master made on 1^st November, 2011, to refuse their application for the dismissal of the action, pursuant to Rule 6/26(2) of the Royal Court Rules 2004 ("Royal Court Rules"), following the failure of the plaintiff to issue a summons for directions within the specified time limit.  

2.        The brief background of the case as taken from the Master's judgement is as follows.  By written loan facility letter dated 20^th March, 1997, the plaintiff agreed a five year loan facility of £4 million to the second defendant (which is owned by the first defendant).  The first tranche of the loan was £2.5 million, with the balance to be advanced as agreed between the parties.  A guarantee and indemnity in respect of the loan arrangements were given by each of the third and fourth defendants.  The fourth defendant provided security in respect of its guarantee and indemnity over a property in France. 

3.        Up to October 1999, a significant number of advances and repayments had been made in relation to the loan facility in connection with various property development interests of the second defendant.  The loan facility was varied by agreement on 10^th November, 1999, and a subsequent agreement was entered into by the parties on 9^th September, 2000, which included repayment schedules.  Attempts to agree and effect repayments of capital and interest did not resolve matters.  The plaintiff says that as at 1^st September, 2000, the total principal outstanding was £2,361,958.15.  This has not been repaid and the interest outstanding on the loan as at November, 2010 (when the Order of Justice was issued) amounted to £4,630,713.01.  The plaintiff also seeks certain other payments and declarations.  

4.        At the time of service of the Order of Justice in November 2010, the third defendant was a declared bankrupt in the United Kingdom (although that bankruptcy has now apparently been discharged).  Proceedings were therefore served on the third defendant's trustee in bankruptcy.  On 26^th November, 2010, judgment in default was obtained by the plaintiff against the third defendant.  

5.        In their answer and counterclaim the other defendants say that difficulties arose with the plaintiff because it was unable to calculate the exact amount of interest due from the first defendant.  The defendants say that under the settlement agreement reached in September 2000, it was agreed that the capital outstanding was £2.7 million.  Correspondence continued subsequently between the parties to try to agree the amount of interest but matters were not resolved.  The defendants put the plaintiff to proof as to the amount of capital owing and also claim that it is the plaintiff's fault that interest has not been properly calculated and therefore the defendants are not liable.  The defendants also claim damages (no amount is specified) as a result of the breach of contract by the plaintiff in failing to calculate the interest due.  In its reply and answer to the counterclaim, the plaintiff joins issue with the contentions of the defendants.  

6.        The Order of Justice first came before the Royal Court on 26^th November, 2010.  On that date judgment in default was entered against the third defendant and the action was placed on the pending list by the other defendants (to whom I will hereafter refer to as "the defendants").  The defendants filed an answer and counterclaim on 4^th February, 2011, and a reply and answer to the counterclaim was filed by the plaintiff on 1^st March, 2011.  The only subsequent procedural activity was the issue of two summonses before the Master, one issued by the plaintiff for directions and the other by the first, second and fourth defendants for the action to be dismissed, pursuant to Rule 6/26(2) of the Royal Court Rules.  

7.        The summons of the defendants seeking to dismiss the action had been prompted by a letter from Bedell Cristin, acting for the plaintiff, to Voisins, acting for the defendants, which sought consent to a proposed amendment to the Order of Justice, necessitated by a merger of the business of Irish Nationwide Building Society with Anglo Irish Bank in July 2011.  Voisins responded to the request with a refusal to consent to the amendment and attaching the summons. 

8.        The present action arose in a slightly unusual way.  In a previous action before the Royal Court the first, second and third defendants, acting as plaintiffs, brought an action against the Irish Nationwide Building Society (the plaintiff in this action), seeking various declarations in connection with the loan facility which is the subject of these proceedings.  Those proceedings sought that accounts be taken and declarations made as to the amount of capital and interest due under the loan facility.  That action (Court file 2007/396) was dismissed by the Master on 21^st September, 2010, under Rule 6/26/13.  There had been no activity on the part of the defendants (as plaintiffs) for some two years and they were in default of a consent order.  In coming to his decision the Master had regard to the fact that the plaintiff was going to issue these proceedings.  He considered that this was the appropriate way for matters to proceed at that time.  He applied the principles set out in the case of Lescroel-v-Le Vesconte [2007] JLR 273. 

9.        The summons brought by the defendants before the Master relied on the provisions of Rule 6/26(1), (2) and (3) which is in the following terms:-

"6/26   Summons for directions.  

(1)       With a view to providing an occasion for the consideration by the Court of the preparations for the trial of an action so that

(a)       all matters which must or can be dealt with on interlocutory applications and have not already been dealt with may so far as possible be dealt with; and

(b)       such directions may be given as to the future course of the action as appear best adapted to secure the just, expeditious and economical disposal thereof,

the plaintiff must, within one month after the time limited for filing pleadings has expired, issue a summons for directions to be heard at least 14 days, and no more than 42 days, thereafter in the form (or substantially in the form) prescribed in Schedule 3.  

(2)       If the plaintiff does not issue a summons for directions in accordance with paragraph (1) the defendant or any other party to the action may do so or apply for an order to dismiss the action. 

(3)       On an application by a party to dismiss the action under paragraph (2), the Court may either dismiss the action on such terms as may be just or deal with the application as if it were a summons for directions."

10.      The defendants also sought the dismissal of the action for want of prosecution, pursuant to the Court's inherent jurisdiction. 

11.      The purpose of Rule 6/26(1) is to provide the Court with an occasion for the consideration of the preparations for the trial when the pleadings have been closed.  In our view and applying the rule strictly, the period of one month for the purposes of Rule 6/26(1) begins to run 21 days after the answer is filed, even where that answer contains a counter-claim, because the filing of pleadings thereafter is permissive.  If, as in this case, the reply is filed late then a Court may well take the view that the period of one month should run from the date the reply is filed, provided it is filed within a reasonable period.  In this case, the answer and counter-claim was filed on 4^th February, 2011, and the period of one month began to run, therefore, 21 days thereafter, namely from 25^th February, 2011, expiring on 25^th March, 2011.  The reply was filed six days out of time on 2^nd March, 2011, which would take the period of one month to 2^nd April, 2011.  Either way this means that there was a delay of some six months before the summons for directions was issued. 

12.      The plaintiff apologised for its failure to issue the summons for directions and filed an affidavit by Rebecca Jayne McNulty, an English solicitor employed by Bedell Cristin, who had the conduct of the case.  She described the process of issuing the Order of Justice and convening of the parties for the first time before the Royal Court on 26^th November, 2010, when judgment was taken against Simon Halabi, the third defendant.  The defendants had until 17^th December, 2010, to file their answers.  In order to assist Voisins, she arranged for copies of the majority of documents referred to in the Order of Justice to be provided to that firm during the course of December and early January 2011.  Voisins sought an extension of time to file the answers, and were granted until the end of January 2011.  31^st January, 2011, passed without an answer being filed and on 2^nd February. 2011, she gave notice to Voisins, that having failed to file an answer or to request a further extension, she would be bringing the matter back before the Court on 4^th February, 2011, to seek judgment in default.  As a consequence, Voisins filed the answer of the defendants on 4^th February, 2011.  With the assistance of counsel, a reply was drafted and filed on 1^st March, 2011. 

13.      Following the filing of the reply, she concentrated on the disclosure exercise and finalising the disclosure papers.  Disclosure in this matter, she says, is quite wide-ranging, involving reviews of the files of the plaintiff and also of its Irish solicitors.  She departed on maternity leave in mid-May 2011, and handed the matter over to another solicitor on the understanding that the work to be undertaken in her absence was the finalisation of the disclosure and the filing of the summons for directions.  The list of disclosure documents was prepared and it runs to 1742 entries.  The affidavit is ready to be sworn. 

14.      It was not contended by Mr Hoy that the Master erred in the law applied by him in the exercise of his discretion, namely the principles set out in the Lescroel case.  It is helpful to set out the judgment of the Master showing how he applied the Lescroel principles to the facts of this case:-

"21.    Applying the Lescroel principles, I must ask three questions.  I deal with those three questions in turn although I should not answer them sequentially for the purposes of coming to a decision. 

22.      Has the plaintiff satisfied me that apart from the failure to issue a summons for directions it has prosecuted its case with at least reasonable diligence?

In this regard, I have taken into account the detailed affidavit sworn by Mrs McNulty on behalf of the plaintiff.  That shows that extensive discovery preparation (a disclosure list of 1,742 documents has been complied) and other procedural steps have been taken.  There remains outstanding only the question of witness statements.  

23.      I have considered carefully the arguments put to me and all the material in support.  On balance, I consider that the actions taken by the plaintiff are sufficient and I find that it has prosecuted its case with at least reasonable diligence. 

24.      Has the plaintiff satisfied me that, in all the circumstances, his failure to apply for a summons for directions is excusable i.e. should it be forgiven?

I am satisfied that in the particular circumstances of this case the failure to issue the summons for directions is excusable and should be forgiven.  The explanations put forward allow me to do this.  That is not to say that I accept the suggestion by Advocate Taylor that the failure to issue the summons for directions was merely a technical error.  Such a summons is fundamental to ensure that progress can be monitored to meet the case management requirements of the Court.  

25.      Has the plaintiff satisfied me that the balance of justice indicates that the action should be allowed to continue?

Having considered all the material put before me I consider that it is appropriate to answer this question in the affirmative also.  I therefore conclude that the balance of justice indicates that this action should be allowed to continue."

15.      Mr Hoy took issue with the Master's application of the Lescroel principles to the facts.  He argued that in the light of the procedural history of the two actions, it was incumbent upon the plaintiff to pursue its action with particular expedition.  No procedural steps had been taken since the filing of the reply.  Internal work carried out by Bedell Cristin was irrelevant for the purposes of the Lescroel test.  The first question in Lescroel requires regard to be had "to the particular features of the case" and in his view, the Master did not appear to have given any consideration at all to this aspect of the matter when answering the first question.  It was particularly important for the Master to have done so, bearing in mind the unusual background to the proceedings.  Particular features which he should have taken into account were:-

(i)        The staleness of the claim which arises out of the facility entered into in 1997, some 14 years ago, and in respect of which letters of demand were issued by the plaintiff in 2001, some 10 years ago;

(ii)       The dismissal of the previous 2007 proceedings for a failure to prosecute those proceedings with reasonable diligence, and the criticisms of the plaintiff for its role in such delay;

(iii)      The fact that the commencement of the present proceedings was a condition of the dismissal of those proceedings and  that the plaintiff  had specifically sought carriage of the new proceedings for itself;

(iv)      The delay in the conduct of proceedings during which time no procedural steps at all had been taken by the plaintiff to progress the action. 

16.      Viewed in this context, he said, the failure by the plaintiff to progress the present proceedings became significantly more serious. 

17.      The Master, he said, failed to place any weight at all on the guidance given by the Royal Court in Garfield Bennett-v-Phillips [2002] JLR 214, namely the principle that the later a plaintiff starts his action, the higher his duty to prosecute it with all due speed.  Although this was referred to by the Master when summarising the arguments of the parties, it did not appear to feature in his reasoning. 

18.      Put another way, said Mr Hoy, having sought and obtained the dismissal of the previous 2007 proceedings on the grounds of delay, and itself having submitted that delay was the enemy of justice and having sought the carriage of the new proceedings, it was not open to the plaintiff to delay in any way in the prosecution of the new proceedings.  It should have pursued the proceedings with urgency.  However, the plaintiff's pursuit of the proceedings has been dilatory, consistent with its historic failures to provide information as to the amounts owing under the facility. 

19.      In relation to the second question in Lescroel, no proper excuse had been put forward by Rebecca McNulty for the failure to issue the summons, either before or after she went on maternity leave.  If a solicitor goes on leave, he said, then it is incumbent upon him or her to ensure that an appropriate hand-over mechanism is in place, so that any outstanding tasks are dealt with properly and it is then incumbent on the firm to ensure that such tasks are dealt with.  In his view, the Master should have concluded that the plaintiff had not satisfied him that in the circumstances its failure to apply for a summons for directions was excusable. 

20.      In relation to the third question, Mr Hoy submitted that the Master was wrong to conclude that the balance of justice indicated that the action should be allowed to continue.  The conciseness of the Master's reasoning on this point did not, he said, shed light on how he approached the question or as to what factors he attached weight.  The relevant factors in fact weighed heavily in favour of the balance of justice being against the continuation of the proceedings.  In particular:-

(i)        The subject matter of the proceedings was stale: the matters had been outstanding since at least 2001 when the original letters of demand were issued by the plaintiff. 

(ii)       It is unfair and unjust to the appellants to have to continue to face the uncertainty of these unresolved claims for a period of well over 10 years. 

(iii)      On the other side of the balance, the plaintiff has had very ample opportunity to pursue this matter, including in the context of the 2007 proceedings, but has conspicuously failed to do so. 

21.      Aside from the continued uncertainty, cost and expense, the other aspect of prejudice, which the defendants will face from the continuation of the proceedings, relates to the ability now to have a proper trial on the matters which are in issue, bearing in mind the time that has elapsed from the material events.  Aspects of the dispute could only be resolved by oral testimony and the Court can draw its own conclusions as to the effect of the passage of time in relation to events which took place ten or more years ago.  The reality is that the subject matter of the proceedings is historic and that delay in the resolution of the proceedings will have further prejudiced the ability to resolve the issues through adequate oral evidence. 

Decision

22.      In an appeal from a decision of the Master, we have to consider the matter afresh, whilst taking due note of the decision of the Master and the reasons for his decision (see Garfield-Bennett). 

23.      The questions raised in Lescroel are there for the guidance of the Court and are not intended as a rigid series of sequential questions as made clear by Birt, Deputy Bailiff, in B-v-M-R [2007] JRC 139 at paragraph 26:-

"26 .... A decision as to whether to dismiss an action without considering the merits is clearly an important discretionary decision which should be taken on the basis of all the circumstances of the particular case.  It would be inconsistent with the existence of such a discretion for the Court to be bound rigidly by a series of sequential hurdles which the plaintiff has to surmount if he is to succeed.  In our judgment the three questions are simply an attempt to provide some guidance as to the matters which should be considered on such an application.  For example, if the plaintiff is only in default by one month when the matter comes before the Court, we think it highly unlikely that the Court would dismiss the action even if satisfied that there was no excuse for the failure to issue a summons.  The remedy of dismissal would simply be disproportionate for the breach involved.  The remedy of dismissal would simply be disproportionate for the breach involved.  An award of costs against the plaintiff (or his advocates) coupled with the giving of directions to progress the matter would in many cases be a much fairer outcome."

24.      In that case, the Deputy Bailiff described dismissal for non compliance with this Rule at paragraph 23 as "something of a nuclear option".  In the case of De Freitas-v-Citadel Trust Limited [2005] JRC 035C, Bailhache, Bailiff described it at paragraph 20 as "a draconian power of last resort". 

25.      Addressing the first question in Lescroel, rather than look at discreet periods we should, as Bailhache, Bailiff, said in Ybanez-v-Mompo [2007] JRC 131 at paragraph 8, view the matter in the round.  We note that the earlier proceedings were dismissed on 21^st September, 2010, and that the present proceedings were commenced within two months.  Thereafter the plaintiff pursued the filing of pleadings with diligence but although it subsequently carried on with internal preparatory work, no procedural steps were taken for some six months after the filing of the reply.  We would tend to agree with Mr Hoy that prosecuting the action means taking procedural steps, rather than internal steps, but even so and taken in the round we would agree with the Master that the action has been prosecuted with due diligence. 

26.      We might, however, have taken the view that the failure to issue the summons for directions was not excusable.  It is clear from the authorities that whether the fault lies with the plaintiff or his legal advisers is irrelevant (see Shtun-v-Zaleijska (1996) 3 All ER 411 at page 426 and Birkett-v-Jamesj (1997) 2 All ER at page 809).  We agree with the Master that failure to issue a summons for directions is not merely a technical error.  As he said, such a summons is fundamental to ensure progress can be monitored to meet the case management requirements of the Court. 

27.      However, we have no doubt that even if we were to answer the second question in the negative, the balance of justice weighs firmly against dismissal.  We are dealing here with a loan made by the plaintiff, under which it claims £2,411,531.16p, together with interest in the sum of £4,630,713.01p, making a total of £7,042.244.  The defendants have put the plaintiff to proof on the sums claimed, but this represents property to which the plaintiff claims to be entitled, indeed substantial property.  It would, in our view, be disproportionate and in potential breach of the plaintiff's right to a fair trial under Article 6(1) of the European Convention of Human Rights for the plaintiff to lose the right to recover that property as a consequence of its failure to issue a summons for directions for some six months in an action that had otherwise been prosecuted with reasonable diligence, and this without any warning. 

28.      We therefore agree with the Master on where the balance of justice lies and are satisfied that he did have regard to the unusual background to this case summarised as it is in his judgement.  Notwithstanding the criticisms of the plaintiff in the earlier proceedings, we note that they were struck out because the defendants had taken no action for two years and were, in addition, in default of the terms of a consent order.  

29.      In our view, the issuing of the summons was opportunistic and has substantially delayed the action.  Rule 6/26(2) provides that if the plaintiff fails to issue a summons for directions, then the other parties may do so, something the defendants appear to have overlooked.  In Eckman-v-Sidem [2009] JRC 233, a case involving what was held to be an inordinate delay of 21 months, the Court said this at paragraph 60:-

"60     We would add one comment in relation to the conduct of the second defendant.  He did not avail himself of his ability under Rule 6/26(2) to issue a summons for directions.  Miss Robinson said this was because the second defendant was aware that the obligation was on the plaintiff to progress the litigation if he was serious about it and the second defendant did not want to incur further costs unnecessarily.  Whilst we accept that rule 6/26(1) places the burden upon the plaintiff, the second respondent's position in our view pays insufficient regard to the change brought about by the Court of Appeal judgment in The Esteem Settlement [2000] JLR 41, namely that times have changed and it now had to be appreciated by all who are involved in civil proceedings that their objective had to be to progress the proceedings to trial in accordance with an agreed and ordered timetable at a reasonable level of cost and in a reasonably short time. 

61.      Practice Direction RC 05/31 is in the following terms:-

'Case Management

1.        In recent years, the Royal Court has adopted a more active approach to case management with a view to achieving a more efficient, timely and cost-effective method of disposing of civil actions. 

2.        In furtherance of these objectives, the Bailiff has indicated the wish of the Royal Court to ensure that existing actions progress as quickly as is reasonably practicable.  Furthermore, in relation to new actions it is the expressed wish of the Royal Court that all parties and their advisers should seek to have actions disposed of within twelve months of their commencement wherever that is possible.  The Judicial Greffier and the Master have therefore been instructed to implement appropriate means to achieve these objectives. 

3.        Rule 6/25(2) of the Royal Court Rules 2004 provides that if three years after an action has been set down it has not been completed the Court may give notice of its intention to dismiss that action.  Rule 6/26(13) allows the Court to consider dismissing an action if a summons for directions has not been issued within two months of the close of proceedings. 

4.        The Deputy Judicial Greffier and the Master have initiated a system whereby, once an action that comes before the Royal Court has been placed on the pending list, it will be reviewed after six months to ensure that appropriate progress has been made.  If that is not the case then the Court will, of its own volition, institute such appropriate case management steps as it considers necessary.  This could include the use of its powers under Rule 6/26(13) in respect of any action which has become dormant. 

5.        It is the view of the Royal Court that the proposals described above which are being implemented are essential to ensure the due and proper administration of justice in civil proceedings."

62.      There is no indication that the review by the Court envisaged in paragraph 4 took place after six months namely in August 2007 or of the Court ensuring that appropriate progress was being made or that the Court of its own volition took any case management steps.  In any event it is quite clear from paragraph 2 of this practice direction that all parties, not just plaintiffs, should seek to have actions progressed in quickly as is reasonably practicable."

30.      The Court in that case went on to refer to Hately-v-Morris and others (2004) 1 BCLC 582, where Mann J said it was not always appropriate for defendants to let sleeping dogs lie.  We do not think it remotely arguable that this delay of six months has given rise to a substantial risk that it is not possible to have a fair trial of the issues in the action or such as is likely to cause serious prejudice to the defendants.  Much of the Order of Justice is admitted, but ultimately whether monies have been lent and the extent to which they have been repaid and the interest due will be based in the main on documents, rather than the memory of witnesses, although we accept Mr Hoy's submission that some oral evidence will be required. 

31.      This is not to detract from the importance of Rule 6/26(1).  In this case, the plaintiff was penalised by the defendant being ordered to pay only 50% of the plaintiff's costs in successfully defending the summons, so as to reflect, as the Master said, what was a significant breach of the Rules which should not have been allowed to take place.  In other cases further sanctions may be appropriate and ultimately dismissal may be proportionate.  

32.      Turning to dismissal for want of prosecution pursuant to the Court's inherent jurisdiction, the test is that set out in Garfield Bennett namely has there been inordinate delay, is that delay excusable and does it give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action or is such as is likely to cause or to have caused serious prejudice to the defendants.  This test presents a higher hurdle than the Lescroel test for the defendants to overcome and it was no doubt in recognition of this that Mr Hoy's skeleton argument and oral submissions were almost exclusively devoted to the Lescroel test. 

33.      It is not arguable in our view that the delay here is inordinate.  In Ybanez (where pleadings had not been completed after four years) the Court (at paragraph 7) expressed the view that a delay of over 24 months would be inordinate and this case is well within that.  That being the case the second and third questions do not arise but in relation to the third question we agree with the Master where he says that the causal link between the delay complained of and any risk as to the trial or serious prejudice has not been established. 

34.      For all these reasons we dismiss the appeal.  We direct the plaintiff to convene the defendants before the Master without delay so that directions can be given in preparation of the trial. 

Authorities

Royal Court Rules 2004.

Lescroel-v-Le Vesconte [2007] JLR 273.

Garfield Bennett-v-Phillips [2002] JLR N 42.

B-v-M-R [2007] JRC 139.

De Freitas-v-Citadel Trust Limited [2005] JRC 035C.

Ybanez-v-Mompo [2007] JRC 131.

Shtun-v-Zaleijska (1996) 3 All ER 411.

Birkett-v-Jamesj (1997) 2 All ER.

European Convention of Human Rights.

Eckman-v-Sidem [2009] JRC 233.

Hately-v-Morris and others (2004) 1 BCLC 582.