Jersey Unreported Judgments

Lease - unless order

[2022]JRC260

Royal Court

(Samedi)

28 November 2022

Before     :

R. J. MacRae, Esq., Deputy Bailiff

 

Advocate J. D. Kelleher for the Plaintiff.

Advocate J. Harvey-Hills for the Defendant.

judgment

the deputy bailiff:

Background

1.        The Defendant leases from the Plaintiff premises used as a cinema pursuant to a 35 year lease commencing on 5 December 2002.  The Plaintiff issued proceedings in respect of non-payment of rent and related charges in respect of periods when the cinema was either closed or its operation restricted owing to the public health crisis caused by Covid 19.

2.        The Plaintiff made an application for summary judgment claiming a sum in excess of £1 million.  The Plaintiff's application for summary judgment was heard by the Master on 21 July 2022.  On 11 October, for reasons set out in a judgment delivered on that date, the Master granted the Plaintiff's application for summary judgment (Waterfront LC Limited v Cine UK Limited [2022] JRC 212).  Further, the Master ordered that the Defendant should pay the costs of and incidental to its application for summary judgment on the indemnity basis and ordered that the Defendant make a payment on account of such costs in the sum of £100,000 within 28 days.

3.        The Defendant appealed against the judgment of the Master and the certain decisions that he made on 11 October 2022 by Notice dated 20 October 2022.  The appeal is to be heard on 9 December 2022.  The Notice of Appeal specifically challenged, inter alia, the decision of the Master that the Defendant make a payment on account of costs in the sum of £100,000 within 28 days, asking that it be set aside. 

4.        There was and is no application for a stay pending appeal made by the Defendant of its obligation to pay £100,000 within 28 days.  The 28 day period expired on 8 November 2022.

The Plaintiff's summons

5.        The Defendant having failed to pay the sum of £100,000, the Plaintiff issued a summons with time abridged on 15 November 2022 requiring the Defendant to attend before the Court on 21 November 2022 to show cause why the Defendant should not be permitted to pursue its appeal against the decision of the Master unless it pays the Plaintiff the sum of £100,000 within a period to be fixed by the Court - suggested in the course of argument to be 7 days.

6.        The Plaintiff's position is a simple one.  The Defendant has not paid the £100,000 within 28 days or at all and has not made an application for a stay.  Therefore the Defendant is in direct breach of a Court order.  As the Royal Court said in Leeds v Admatch [2011] JRC 016A:

"The starting point is that orders of the Court are to be obeyed and if a party refuses to pay an award of costs made against it, it is at risk of having its claim or defence, as the case may be, struck out."

7.        The Defendant is a company incorporated outside the jurisdiction with no substantial assets within it.  Further, the Plaintiff said that when considering whether to make the order requested - in effect, an unless order - that the Defendant should be debarred from pursuing its appeal to the Royal Court unless the sum is paid.  In the context of this case (the effect of preventing a party from appealing an order will depend on the circumstances), this would be tantamount to striking out the Defendant's defence to the Plaintiff's claim as this was a successful application for summary judgment.

8.        The Plaintiff said that when considering whether to make the order sought (I will consider the appropriate test before making such an order below), then the Court would not need to be concerned about the Defendant, if successful on appeal, being repaid the monies that were subject of the costs order as the Plaintiff is ultimately owned by the Government of Jersey and accordingly there can be no argument that any monies paid to the Plaintiff would not be repaid to the Defendant if the Court so ordered. 

The Defendant's arguments

9.        The Defendant's arguments are more complex and arise out of the fact that subsequent to the hearing before the Master but before the handing down of the judgment in this case, the Defendant and associated companies filed a petition in the Bankruptcy Court for the Southern District of Texas under Title 11 of the United States Bankruptcy Code.  Such proceedings are commonly known as 'Chapter 11 Proceedings'. 

10.      It is said that the filing of this petition gave rise to an order which was made on 8 September 2022 which was described by the Defendant as a 'worldwide automatic stay order' which has extra- territorial effect.  In particular, the effect of those orders are that the pursuit of these proceedings by the Plaintiff and any attempt to enforce any consequential judgment or costs orders are prohibited and in any event the Defendant is prohibited from making any payments to the Plaintiff in connection with these proceedings without the express permission of the US Court. 

11.      It is appropriate to now consider the evidence which has been filed by the Defendant in support of this contention.  That evidence has not been challenged by the Plaintiff and is contained in an affidavit made by Ciara Foster of Kirkland and Ellis LLP, New York.  She notes that the Chapter 11 Proceedings were applied for by the Defendant and 104 affiliated entities collectively described as the 'Debtors'.  She says, as supported by the evidence she exhibits, that pursuant to Section 362 of the US Bankruptcy Code, the petition sought by the Debtors automatically operates as a stay of creditors' debt collection efforts outside the umbrella of the Chapter 11 Proceedings.  This automatic stay gives debtors a 'breathing spell' from their creditors that is essential for the purpose of a corporate reorganisation.

12.      In particular, the automatic stay prohibits:

"The commencement or continuation...of a judicial, administrative or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case...., or to recover a claim against the debtor that arose before the commencement of the case..."

13.      Ms Foster goes on to say that the automatic stay protections apply regardless of where the property of the debtors' estate is situated and extends to the debtors' leasehold interests.  Further, in the US proceedings on 8 September 2022, the judge of the Bankruptcy Court indicated that in his view, owing to reasons of comity, it was inappropriate for the UK Courts to proceed with hearing a winding up petition made against certain entities affected by the Chapter 11 Proceedings.  Ms Foster says that in light of the orders made on 8 September 2022, 'the Debtors are prohibited from making any payments to the Jersey landlord in connection with [these proceedings] without the express authority of the US Bankruptcy Court'.  She says that the appropriate means of recovery is to file a proof of claim with the US Bankruptcy Court by a date in early 2023.

14.      The order made on 8 September 2022 was exhibited to Ms Foster's affidavit and provides, inter alia, that:

"Subject to the exceptions to the automatic stay in Section 362(b) of the Bankruptcy Code, all persons....whether of the United States...or any non-US jurisdiction... are hereby stayed, restrained and enjoined from:

(a)  commencing or continuing...any judicial...proceeding against the Debtors that was or could have been commenced before the commencement of the [Chapter 11 Proceedings];

(b)   enforcing against the Debtors or against property of their estates, a judgment or order obtained before the commencement of the [Chapter 11 Proceedings]."

15.      Clause 7 of the order provides that the automatic stay 'is modified solely to the extent that the debtors deem appropriate to admit the debtors to pursue claims of their estates in litigation or contested matters (including any appellate proceeding) commenced before the petition date....'.  Advocate Harvey-Hills said that this provision at first blush entitled the Defendant, if it so wished, to pursue the appeal to the Royal Court against the orders made on 11 October 2022.

16.      Notwithstanding the purported extra-territorial effect of the order made in the US Court on 8 September 2022, the fact remains that such an order has no direct effect in Jersey.  Advocate Harvey-Hills accepted that it would have been appropriate for the US Court to have either issued a letter of request to the Jersey Court seeking recognition of the Chapter 11 Proceedings or for some equivalent application to have been made, or for an application to be made to stay these proceedings.  No such approach or application has been made and Advocate Harvey-Hills, who had only become involved in the matter at short notice, was not aware why that was the case.  Although no summons had been issued seeking a stay of these proceedings or equivalent it was suggested in the Defendant's skeleton argument that I should, as an exercise of my case management powers, nonetheless stay the proceedings in Jersey pending the conclusion of the Chapter 11 Proceedings.  I declined to do this as this is a matter which should, if it is to be proceeded with at all, be made by way of letter of request, summons or separate Representation.  Furthermore, it is accepted that in any event it is appropriate and necessary for the proceedings between the Plaintiff and the Defendant to be resolved.  The Defendant says that as soon as it and associated companies exit the Chapter 11 Proceedings, they will be able to pay their debts.  Counsel for the Defendant says:

"If, as expected, [the Defendant] successfully exits the Chapter 11 Proceedings as a going concern, it would be able to meet its obligations.  In the interim, it continues to make its current rental payments."

The test for the Court to apply

17.      The parties were not agreed as to the test for the Court to apply when considering what is, in effect, an unless order on the facts of this case.

18.      The Plaintiff referred to the decision of the Court of Appeal in Crociani v BNP Paribas Jersey Corporation Limited [2017] JCA 028 where the Court was considering a disclosure order made against the appellant where a stay of the obligation to make disclosure had been refused pending appeal.  The appellant sought leave to appeal.  At paragraph 15 the Court of Appeal said:

"We entirely agree...that it is important for courts to police the orders which they pronounce and that it is in the interests of justice that orders which have been pronounced are respected and that a failure to respect orders should be visited with sanctions unless there were compelling reasons not to do so."

19.      The Court continued:

"16.  On the other hand, we recognise that, as stated in authorities put before us by Advocate Baker, courts faced with issues arising from intentional failure to adhere to court orders must think carefully as to the way in which that intentional failure should be reflected where the person subject to the order seeks to have access to court procedures in order to protect their own interests.  Reference was made to Jakobsson v Offshore Nautical Sales Limited [2003 JLR 71] and Hammond Suddards Solicitors v Agrichem International Holdings Limited [2001] EWCA Civ 2065 as well as JSC BTA Bank v Ablyazov [2012] EWCA Civ 369.

17. An important point which emerges from those authorities is that the court must bear in mind the implications that, in certain circumstances, the argument in favour of making orders which support the orders already made by relevant courts, might stifle proper appellate procedures: see paragraph 41 in Hammond Suddards."

20.      Accordingly the principle that emerges from this case is that it is important for Court orders to be complied with, but there is a balancing exercise to be carried out when considering which sanctions to impose and the consequences that those sanctions may have.

21.      In Jakobsson v Offshore Nautical Sales Limited [2003] JLR 71, a decision to which the Court of Appeal referred in Crociani v BNP, the Court needed to consider an application made by the successful party at trial that the appeal to the Court of Appeal be stayed until a certain sum be paid on account of the judgment debt and by way of security for payment of the successful party's costs incurred in the Royal Court.  The Court of Appeal agreed it had jurisdiction to make such an order as part of its inherent jurisdiction.  Southwell JA, giving the judgment of the Court, said that the use of inherent powers was not based 'simply on fairness' but 'necessity' which was to be 'judged by reference to the issues placed before the Court by the parties, and to the Court's ability to act as an effective Court of justice in resolving those issues or effectively enforcing the orders of the Court'.  At paragraph 16, Southwell JA said:

"Where the Court is faced with abuses of its process, the threshold for deciding that inherent powers are necessary to curb such abuses is not, in my judgment, a high one."

22.      On the facts of this case, Advocate Harvey-Hills makes the observation that the Defendant has no history of failing to comply with Court orders. 

23.      Finally, the Plaintiffs referred to the decision of Birt, Bailiff, in Leeds v Admatch [2011] JRC 016A, which is apposite in that it concerned the defendant's failure to pay a sum due under a costs order which had been taxed by the Court.  The plaintiffs accordingly applied for an order against the defendant against the background of various other failures on the part of the defendant to comply with Court orders.  Having referred to the competing arguments, the judge said:

"29.      I was referred to a number of cases, but it seems to me that the applicable principles are to be found in those referred to below.

30.      In Alhamrani v Alhamrani and others [2008] JRC 051, the Royal Court was faced with a defendant, Sheik Abdullah, who had repeatedly failed to comply with orders of the Court or to take an appropriate part in the proceedings.  Having summarised at paragraph 34 of the judgment the nature of the inherent jurisdiction of the Court following Mayo v Cantrade [1998] JLR 173, Page Commissioner said this at paragraph 37:-

"It is axiomatic that one area in which considerations of necessity may demand the exercise of the court's inherent jurisdiction is when someone who has been properly made a party to the litigation takes it upon himself to flout or ignore the court's orders or persistently to conduct himself in a way that evinces an unwillingness to engage in the litigation process on an equal footing with the other parties, as here. And, while striking out or threatening to strike out a defendant's pleading, or otherwise barring him from defending proceedings, is a strong thing to do - more so, perhaps, than striking out a plaintiff - the ability to do so in an appropriate case must be, on any view, a necessary part of the court's armoury."

31.      Despite the fact that the conduct of Sheik Abdullah as summarised in the judgment was, in my judgment, worse than that of the defendant in this case, the court in Alhamrani gave Sheik Abdullah a final chance to put his house in order.  It made clear, however, that any further breach of court orders would be likely to lead to the summary striking out of his answer.

32.      Although, initially, Sheik Abdullah complied with the order, he failed to participate in the proceedings at a later stage as a result of which his answer was struck out.  On appeal [2008] JCA 187A, the Court of Appeal confirmed at paras 65 - 67 of the judgment the jurisdiction of the Royal Court to strike out a defence because of defaults on the part of a defendant in complying with orders of the Court.  Nevertheless, the Court of Appeal emphasised the drastic consequences of such an order and, despite Sheik Abdullah's conduct, allowed the appeal and permitted Sheik Abdullah to continue to defend the case provided that he paid into the hands of the Greffier a substantial sum by way of security for costs of the other parties.

33.      Further assistance as to the circumstances in which striking out may be appropriate is to be found in the comment of Chadwick LJ in Arrow Nominees Inc v Blackledge [2000] 2 BCLC 167 at para 54:-

"I adopt, as a general principle, the observations of Millett J in Logicrose v Southend United FC Limited (The Times 5 March 1988) 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 its 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 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." (Emphasis added)

34.      The above passage was quoted with approval by Bean J in Madarassy v Nomura International plc [2006] All ER (D) 75 and he went on to say at para 30(iii):-

"Striking out is a draconian remedy: it must be a proportionate response to the misconduct involved, and there must be a compelling reason for the Court or tribunal to take such a step."

35.      I draw from the above authorities the conclusion that it is a strong thing to strike out a defence and there must be an abuse of process such as to render further proceedings unsatisfactory or prevent the court from doing justice or, to quote Page Commissioner, a party must have flouted or ignored the Court's orders or persistently conducted himself in a way that evinces an unwillingness to engage in the litigation process on an equal footing with the other parties.

36.      I should add that this is not a case where the defendant is, at present, in breach of an 'unless' order.  The plaintiffs have not sought an unless order in respect of the two failures by the defendant to comply with the order of 17th December 2009.  Where there is a breach of an unless order, different considerations are likely to apply; see the observations of Ward LJ in Hytec Information Systems Limited v Coventry City Council [1997] 1WLR 1666 at 1674 - 1675, quoted with approval by the Court of Appeal in Alhamrani at paras 84 and 85.

37.      I turn next to consider the authorities in relation to a failure to pay a sum ordered by the Court, such as an order for costs.  There is clear authority for the proposition that such a failure may lead to a party being struck out provided that the failure is not due to an inability to pay.  Although the case involved very different issues, the observations of Millett LJ in Abraham v Thompson [1997] 4 All ER 362 at 377 are relevant:-

"It is not an abuse of the process of the court for an impecunious plaintiff to bring proceedings for a proper purpose and in good faith while being unable to pay the defendant's costs if the proceedings fail.  If the plaintiff is an individual the court has no jurisdiction to order him to provide security for the defendant's costs and to stay the proceedings if he does not do so.  It may be unjust to a successful defendant to be left with unrecovered costs, but the plaintiff's freedom of access to the courts has priority.  The risk of an adverse order for costs and consequent bankruptcy has always been regarded as a sufficient deterrent to the bringing of proceedings which are likely to fail.  Where there is no risk of personal bankruptcy as in the case of a plaintiff which is a limited company, the court has a statutory jurisdiction to award security for costs; but even in this case it will frequently not do so if this will have the effect of stifling bona fide proceedings.  It is preferable that a successful defendant should suffer the injustice of irrecoverable costs than that a plaintiff with a genuine claim should be prevented from pursuing it."

These observations are, a fortiori, applicable in the case of an impecunious defendant who finds himself brought before a court at the instance of a plaintiff."

24.      The judge went on to make an unless order giving the defendant a 'final opportunity to pay the outstanding amount of costs'.  The terms of the order were that unless the defendant paid the costs by a certain date its defence would automatically be struck out.

25.      The Defendant says that the approach of the Court is to be found in the decision of Sheyko v Consolidated Minerals Limited [2021] JRC 267, which considered an application to strike out a claim, the Court noting that the same test applied whether the application was brought under Royal Court Rule 6/13(1)(d) or Rule Court Rule 6/26(12).  Sheyko concerned an appeal against the Master's order striking out the Defendant's defence in circumstances where there had been a failure to comply with discovery orders.  Commissioner Clyde-Smith went on to say, having considered the relevant authorities:

"104.   In Newman v de Lima and Anor [2018] JRC 155, the defendants failed to comply with an order to serve evidence.  At paragraph 41 the Master held as follows:

           "Where an order has been breached, I agreed with both counsel that the power to make orders in relation to any non-compliance is found in Rule 6/26(12).  In interpreting Rule 6/26(12), Rule 1/6, which contains the overriding objective and was introduced in June 2017 by Royal Court (Amendment No 20) Rules 2017 ... requires me to both give effect to and to interpret rules in light of the overriding objective."

105.   The Master further held that, as Jersey now had in RCR 1/6 an overriding objective identical to that found in the CPR, it was appropriate to apply the first two limbs of the test set out by the English Court of Appeal in Denton v TH White Limited [2014] 1 WLR 3926 when considering what sanction to impose (see paragraph 42) namely:

(i)        Was the breach serious or significant? and

(ii)       Was there good reason for the breach?

106.   In addressing these questions, the Master stated at paragraph 43:

           "what needs to be considered are the orders that have not been complied with and the effect of such non-compliance on the progress of the litigation either to a trial or to a settlement."  

107.   The Master did not follow the third limb of Denton (which refers specifically to CPR 3.9) and instead held that the discretion in Jersey was more general (at para 47 et seq.):

           "47. In my judgment in this jurisdiction, the discretion is a more general one.  This discretion still requires me to consider whether the case can be dealt with justly and at proportionate cost and any relevant factors listed in Rule 1/6.  However, I consider that I am also required to look at the case as a whole and the nature of the proceedings in particular, what is in issue where some form of strike out of a claim is contemplated. In cases involving a failure to issue a summons for direction (albeit pre-dating the overriding objective), the Royal Court has noted that the most severe sanction of striking out a plaintiff's claim should not be applied if there are other sanctions which could be applied which would enable justice to be done between the parties - see for example Viera v Kordas [2014] JRC 042 at paragraph 19 and Mayhew v Bois Bois [2016] JRC 024 at paragraphs 8 and 9.  Whether the failure is to issue a summons for directions required by the Rules or a failure to comply with a particular order, I consider that the same approach should be taken to imposition of sanction which has the effect of striking out a claim or counterclaim or an answer, thus depriving a party of their day in Court.

           48. I also consider it may be possible to make orders which fall short of striking out the entire claim.  Depending on the breach it may be possible to limit the sanction to striking out part of a case or that if a particular step is not complied with part of the case will be struck out or evidence may not be adduced on a particular issue.  There is also the sanction of costs.

           49. I have referred to these different possibilities available to the Court because they are all illustrative of the more general discretion available to the Court where a party has not complied with a Court order.  In reaching this view, it should not be forgotten that procedure is a means to an end namely a trial or settlement and breaches should be kept in that context.  The key issue is therefore the effect of any non-compliance and whether or not a fair trial can take place after a breach.  I accept I have to also take into account, if it is right to impose a sanction for non-compliance, whether that non-compliance was either deliberate or there is no justification for it.  In every case there will always come a point where the conduct of a party in ignoring Court orders will lead to the ultimate sanction of a case being dismissed even if a trial could still take place.  This judgment should not therefore be taken as any indication that non-compliance of any Rules and Practice Directions is acceptable, will be tolerated or will not, in appropriate cases lead to the ultimate penalty of a claim or answer being struck out.' (emphasis added)

108.   The Master, whose approach we endorse, applied the same test in Powell v Chambers [2018] JRC 169, which was about relief from sanction after a party had been automatically struck out for failure to comply with an unless order in respect of discovery.

109.   The correct legal position is that CML could have been struck out under RCR 6/13(1)(d) and/or RCR 6/26(12).  If the application at first instance had been brought under RCR 6/26, the result would have been the same.  The approach to striking out a claim remains the same.  The key issue is the effect of any non-compliance and whether or not a fair trial can take place after a breach.  That is the basis upon which the Master approached his judgment."

Decision

26.      In this case we are not concerned whether or not a fair trial can take place and I am not concerned with an application for a strike out per se, but an application for a debarring order which, if the Defendant's arguments are accurate, would have the ultimate effect of the Defendant being debarred from participating further in these proceedings.

27.      Following these two lines of authorities if the Defendant is correct I am to ask myself:

(i)        Was the breach of the Court order in this case serious or significant? 

(ii)       Was there a good reason for the breach?

(iii)      If this was a serious or significant breach and there was no good reason for the breach, how should I exercise my discretion, having regard to the need to deal with a case justly and proportionately, and having regard to any other relevant factors in Royal Court Rule 1/6 and also the case as a whole?

28.      If the Plaintiffs are correct then I need to consider:

(i)        Has there been a deliberate breach of the Court order?

(ii)       Does that breach amount to an abuse of process in that, in the context of this case, the party in question has flouted or ignored the Court's orders or conducted itself in such a way that evinces an unwillingness to engage in the litigation process or on equal footing with the other party?

29.      I need not rule on which approach is to be preferred.  Whichever approach is adopted, this was a deliberate failure to comply with a Court order where the Defendant has made no attempt to obtain a stay of execution and has still failed to do so.  The breach was also a significant one.  However, the Defendant has advanced a reason for its breach of the order which I am unable to reject and in the event and in the exercise of my discretion I do not think it is appropriate to grant the unless order sought.  When reaching this decision, I have also taken into account the fact that the appeal is to be heard in short order and that, in my view, it would be unjust and disproportionate, on the Defendant's case, to stifle that appeal by making an order which the Defendant may be unable to comply with.  Furthermore, this is not a case with a history of a party flouting Court orders or persistently conducting itself in a way that evinces an unwillingness to engage in the litigation process.

30.      Accordingly at the end of the hearing I indicated that I would be not granting the application made by the Plaintiff in its summons. Furthermore, I ordered that the costs of and incidental to the application be reserved pending the outcome of the appeal when the matter of costs can then be revisited.

Authorities

Waterfront LC Limited v Cine UK Limited [2022] JRC 212. 

Leeds v Admatch [2011] JRC 016A. 

Crociani v BNP Paribas Jersey Corporation Limited [2017] JCA 028. 

Jakobsson v Offshore Nautical Sales Limited [2003] JLR 71. 

Sheyko v Consolidated Minerals Limited [2021] JRC 267.