NEWLAND CONSIDERS NEW GROUND: LOSS OF LEGAL REPRESENTATION NOT A “GOOD REASON” FOR OBTAINING RELIEF FROM SANCTIONS.
The case of Newland –v- Toba Trading involves some complex facts. However it is important that it is reviewed n detail because there are important observations on civil procedure. In particular whether a party should apply for a review or appeal and on applications for relief from sanctions when there are two related actions.
NEWLAND SHIPPING AND FORWARDING LTD –V- TOBA TRADING FZC  EWHC 210 (Hamblen J).
This was a case relating to the supply and trade of oil products. The Claimant brought two actions against three different Defendants. During the course of proceedings the first defendant and the third defendant made an application for relief in respect of an Order which stated:
(1) D1’s defence and counterclaim was struck out and judgment entered against D1.
(2) Judgement is entered against D3.
THE PROCEDURAL HISTORY
- The Claim Forms were issued on the 12th October 2011.
- Acknowledgements of service were filed by the First and Second Defendant, but not the Third Defendant.
- In June 2012 the Claimant filed an application to amend the Claim Forms.
- In July 2012 the Defendants applied to strike out the Claimant’s Claim Form and Particulars or alternatively an order for summary judgment.
- In January 2013 the Claimant issued a further application to re-amend the particulars.
- The Claimant was granted permission to serve the amended Particulars of Claim in February 2013.
- In July 2013 the Defendants’ applications were dismissed. It was ordered that the Claimant’s two actions were to be tried together and directions were given in relation to the second action (as the first action was already ready for trial).
- On the 30th September 2013, following an agreed extension, the parties exchanged disclosure lists.
- However the First and Second Defendants served a combined disclosure list, contrary to E3.2 of the Admiralty and Commercial Court Guide which requires separate lists from each party.
- Just before the exchange of witness statements the Defendants’ solicitor indicated that they were no longer working for the Defendant. But that their former clients had asked them to pass on a request for an extension of time for exchange of witness statements and regarding disclosure.
- The Claimant refused to agree a further extension.
- On the 29th October 2013 the Claimant made an application for judgment against the Defendants for non compliance with a court order.
- The Defendants then wrote to the court, without informing the Claimant. They stated that their previous solicitors had “caused us some difficulties”.
- The second Defendant arranged to attend the hearing by video link.
- Shortly before the hearing the First and Third Defendant emailed the court requesting that the hearing be adjourned as they were having difficulties in obtaining a visa. This request was refused.
- At the hearing the First defendant’s defence and counterclaim was struck out and judgment entered against them. Judgement was also entered against the third defendant.
- The defendants applied for relief from sanctions in relation to the judgment entered against them. The judge also allowed them make an application under CPR 3.1(7) – to vary the order.
THE RELEVANT PRINCIPLES
The judge began by considering the relevant principles of the Defendants’ applications.
35. CPR 3.1(7) provides that:
“A power of the court under these Rules to make an order includes a power to vary or revoke the order.”
36. The relevant authorities were considered by the Court of Appeal in Tibbles v SIG plc  EWCA Civ 518 and conclusions to be drawn from the jurisprudence summarised by Rix LJ at . He stated that although the rule is broadly drawn “considerations of finality, the undesirability of allowing litigants to have two bites at the cherry, and the need to avoid undermining the concept of appeal, all push towards a principled curtailment of an otherwise apparently open discretion”. He explained that “the primary circumstances in which the discretion may, as a matter of principle, be appropriately exercised, namely normally only (a) where there has been a material change of circumstances since the order was made, or (b) where the facts on which the original decision was made were (innocently or otherwise) misstated”, but warned against treating these primary circumstances as a statute.
37. In Mitchell v News Group Newspapers Ltd  EWCA Civ 1537;  6 Costs L.R. 1008 the Court of Appeal summarised what it described as the “Tibbles criteria” as follows at :“…The discretion might be appropriately exercised normally only (i) where there had been a material change of circumstances since the order was made; (ii) where the facts on which the original decision was made had been misstated; or (iii) where there had been a manifest mistake on the part of the judge in formulating the order. Moreover, as the court emphasised, the application must be made promptly…”
38. CPR 3.9(1) provides 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.”
39. The leading authority is the Mitchell case. This requires a “robust” approach to be taken. As explained at , “the need to comply with rules, practice directions and court orders is essential if litigation is to be conducted in an efficient manner. If departures are tolerated, then the relaxed approach to civil litigation which the Jackson reforms were intended to change will continue”.
40. Under CPR 3.9 the “paramount” considerations are now “the need (i) for litigation to be conducted efficiently and at proportionate cost and (ii) to enforce compliance with rules, practice directions and court orders” .
41. Whilst “regard should be had to all the circumstances of the case…the other circumstances should be given less weight” than the two “paramount” considerations .
42. The “starting point” is that “the sanction has been properly imposed and complies with the overriding objective” . “An application for relief from a sanction presupposes that the sanction has in principle been properly imposed. If a party wishes to contend that it was not appropriate to make the order, that should be by way of appeal or, exceptionally, by asking the court which imposed the order to vary or revoke it under CPR 3.1(7)” .
43. In considering whether relief should be granted, “it will usually be appropriate to start by considering the nature of the non-compliance with the relevant rule, practice direction or court order. If this can properly be regarded as trivial, the court will usually grant relief provided that an application is made promptly.” .
44. “If the non-compliance cannot be characterised as trivial, then the burden is on the defaulting party to persuade the court to grant relief. The court will want to consider why the default occurred. If there is a good reason for it, the court will be likely to decide that relief should be granted.” . “Good reasons are likely to arise from circumstances outside the control of the party in default” .
45. In summary, the importance of the “paramount” considerations means that as a general rule relief will not be granted unless (i) the non-compliance was trivial or (ii) there was good reason for the default. Although all the circumstances of the case are relevant, they are of less weight than the “paramount” considerations. Compelling circumstances are therefore likely to be required if relief is to be granted for a non-trivial default for which there is no good reason.”
THE DEFENDANTS’ APPLICATION UNDER CPR 3.1 (7)
The Court then considered the above principles in the context of the case :
47. There is one ground upon which it is not seriously disputed that D1 and D3 are entitled to an order under CPR 3.1(7), namely that in the 1213 Action judgment has been entered for the wrong amount. The Amended Particulars of Claim amends the price claimed down from US$4,534,120.48 to US$3,904,060.16. However, the prayer to the pleading was not amended, as it should have been, to reflect this change and judgment was sought and obtained on the basis of the incorrect higher figure. The facts on which the original decision was made were therefore misstated. It was stated that the claim for the price was US$4,534,120.48 whereas it was in fact US$3,904,060.16. The court can and should exercise its discretion under CPR 3.1(7) to allow the judgment to be varied so as to reflect the correct figure claimed.
48. In all other respects the application under CPR 3.1(7) was vigorously resisted. I shall address the application by reference to the requirements which, as the Mitchell case makes clear, “normally” need to be satisfied for it to be appropriate for the court’s discretion to be exercised, namely:
(1) whether there has been a material change of circumstances since the order was made;
(2) whether the facts on which the original decision was made had been misstated;
(3) whether there has been a manifest mistake on the part of the judge in formulating the order.
49. D1/D3 submitted that there had been a material change in circumstances since the order was made because, in contrast to the position at the time of the order, there was now evidence from D1/D3, representation for D1/D3 and submissions by D1/D3. In my judgment these matters cannot amount to a change in circumstances. There could have been representation for and evidence and submissions from D1 and D3 at the time of hearing before Field J. If they had paid their solicitors there would have been. Even without solicitors they could have appeared at the hearing, as D2 did. Circumstances such as these, which were known to and within the control of the party at the material time, cannot found a material change in circumstances.
50. D1/D3 further submitted that there had been a manifest mistake by the Judge in formulating the order in that he had failed to consider alternative and more appropriate forms of sanction and the appropriateness of the sums claimed for which judgment was being given. However, these are matters which go to whether the order should have been made, rather than to its formulation. They are matters for appeal, not revocation or variation under CPR 3.7(1).
51. The main argument of D1/D3 was that the facts on which the decision was made were misstated. It was submitted that Field J’s decision must have been founded on his acceptance of the Claimant’s case that “D1 had turned its back on the litigation entirely” and that D1 and D3 had “a strategy of not investing further in the litigation but pursuing nonetheless a campaign of prevarication and delay”. It was submitted that this was factually incorrect.
52. However, the Claimant’s case to this effect was a matter of assertion. It was not a statement of fact. Nor, if relevant, could D1/D3 show that misstatements of fact were made in support of that asserted case. D1/D3’s counsel went through a long list of matters which it was submitted were not brought to the attention of Field J, but these did not involve any misstatement of fact.
53. The principal matters about which complaint was made were as follows:
(1) That there had been no prior default by the Defendants.
(2) D1 and D2’s application to strike out/summary judgment had originally been adjourned because of the Claimant’s conduct.
(3) The fact that the Defendants had made an application to extend time for witness statements.
(4) The fact that the 1213 and 1214 actions had been ordered to be heard together and not consolidated. Further, defaults in action 1213 would not impact on action 1214, as the Claimant asserted.
(5) The costs history was presented in a one sided way.
(6) No mention was made of the fact that costs orders had been made against the Claimants, including “unless” orders.
(7) It was wrong to assert that D1 and D3 had turned their back on or were manipulating the proceedings, as the full factual history would have made clear.
(8) The Defendants’ arguments in relation to the non-availability of any claim for the price was wrongly described as being technical.
(9) The difficulties for Iranian parties to obtain clearance to fund new representation was not explained.
(10) It was not pointed out that the reason that there was no Amended Defence was because there had not yet been any requirement to do so.
(11) It was not pointed out that the figures claimed gave no proper credit for the counterclaim.
(12) It was not pointed out that there is no prospect of enforcement in Iran and that D2 had no assets in the UAE to enforce against.
(13) It was wrongly suggested that there was no substance to the Defendants’ forum conveniens arguments.
(14) There was no mention made of the Defendants’ application to adjourn.
54. In my judgment, wide ranging arguments of this kind are properly the subject matter of an appeal rather than the exercise of the court’s discretion under CPR 3.1(7) which is only available “exceptionally” (per Lord Dyson MR in Mitchell at ) or rarely (per Rix LJ in Tibbles at [39(vii)]). The use of the court’s power under the rule in the case of misstatement is only likely to be appropriate in cases involving a clear misstatement which is central to the decision made, as exemplified by the misstated claim for the price in this case. It is not likely to be appropriate in cases such as this involving complex, detailed arguments as to why and how the Judge may have ended up with a wrong impression of the case. If he did, that is a matter for appeal.
55. The Claimant was able to answer each of the points made by D1/D3. It is not necessary to go through each answer so given. It is sufficient to say that I am satisfied that none of the points made demonstrate a misstatement of fact or a failure to state known and obviously material facts.
56. I am not therefore satisfied that any of the three main grounds for exercising the court’s power under CPR 3.1(7) have been made out. Nor do I consider that there are any other grounds or circumstances which justify the court exercising that power in this case.
57. Save in relation to the judgment amount in Action 1213 I accordingly reject the application under CPR 3.1(7).
THE THIRD DEFENDANT’S CPR3.9 APPLICATION
In relation to the Third Defendant’s application it was held that the judgment entered against them was a judgment in default (as they had failed to acknowledge service). Therefore the appropriate procedure for challenging this was CPR 13 NOT CPR 3.9.
THE ACTIONS HAD NOT BEEN CONSOLIDATED: BREACH IN ONE ACTION DID NOT IMPACT UPON THE OTHER.
In relation to the Claimant’s first action the Defendant argued that there had been no default. The action had been ready for trial for a considerable time. Disclosure was complete and the First Defendant had complied with all procedure rules and orders.
The Claimant argued that because the actions were to be tried together they were “effectively” consolidated and that breaches of the orders in the second action were “effectively” defaults in both actions.
The Claimant’s argument was rejected by the judge who held that the actions remained separate actions; they had not been consolidated. Therefore a breach of order in the second action was not a breach of any order in the first action, even if it did have some effect on the first action. In any event he would grant relief from sanctions in relation to the first action.
THE DEFENDANTS’ BREACHES IN THE SECOND ACTION
The judge was not willing to grant the Defendants’ relief from sanctions in the second action.
72. The alleged defaults were:
(1) An allegedly inadequate disclosure list from D1;
(2) A failure to file separate disclosure lists on behalf of D1 and D3;
(3) A failure to serve witness statements by 25 October 2013.
73. If the sole default had been a temporary failure to file a separate disclosure list then there might have been a de minimis argument. However, the other defaults are matters of substance and importance, particularly bearing in mind that there was a February trial date.
74. Although it was not accepted that inadequate disclosure had been given, I am satisfied, as was Field J, that it had been. Field J ordered D2 to provide further disclosure, and further disclosure has been provided. Further, D1’s evidence acknowledges that there are further documents to be disclosed, albeit not all those sought. The provision of timely witness statements was a matter of obvious importance given the tight trial timetable. Further, it was not a matter of missing the deadline by a short period. It was made clear that considerable further time would be needed and indeed that the statements had hardly been begun. Even now statements have still not been provided.
75. The nature of the non-compliance was therefore serious. It was not trivial or close to being so.
(2) whether there is a good reason why the default occurred
76. There is no good reason in this case. The main ground relied upon was the loss of legal representation. However, D1 was still represented by Stephenson Harwood LLP at the time that inadequate disclosure was given by a single rather than separate lists. It was also still represented by them until a few days before the witness statement deadline.
77. The evidence was that work from 20 September 2013 onwards was hampered by the dispute which had arisen about fees. However, that simply demonstrates that there was a lengthy build up to Stephenson Harwood LLP’s withdrawal. D1 would no doubt have been warned of the consequences of such withdrawal long before it occurred and had every opportunity to avoid such drastic steps being taken, or to plan around it.
78. Any difficulties that arose as a result of loss of representation were therefore foreseeable consequences of D1 not being prepared to pay fees which it was able to pay, but chose not to. That is not a good reason for default.
79. The only reason advanced in relation for the default in relation to disclosure was the contention that there was no such default. I have already rejected that contention.
80. D1 contended that there was good reason for the default in serving witness statements because (1) disclosure had been delayed by agreement; (2) D1 and D3 were litigants in person and did not have English legal representation; (3) D1 had made two applications for relief albeit not in the proper form promptly; and (4) the delay at the time of C’s application was two working days (Friday 25 October and Monday 28 October).
81. As to (1), disclosure was agreed to be delayed on the basis that the deadline for witness statements would remain. In any event, this would at most justify an extension of 10 days and it is clear that the Defendants were not in a position to provide witness statements in anything like that timeframe. As to (2), representation was only lost shortly before the witness statement deadline and it had been looming since at least 20 September 2013. The suggestion made in the application for an extension of time that it was “as a result” of D1 and D3 being so informed on 23 October 2013 that “we didn’t have enough time to prepare our witness statement” was plainly incorrect. As to (3), the applications were not made before time had expired. Further, no application was made in relation to disclosure. As to (4), this does not address the reason for the breach and the application did not lead to the breach being cured.
82. For all these reasons I conclude that there was no good reason for the defaults.”
THE OTHER CIRCUMSTANCES OF THE CASE
The Defendant also sought to argue that there were other compelling reasons why relief should be granted, namely
(1) D1 and D3 were unrepresented;
(2) D1 and D3 had applied to Court for an adjournment;
(3) The Court does not seem to have been aware of D1 and D3’s applications;
(4) The full picture was not properly presented to the Court;
(5) The majority of the defaults were trivial;
(6) The application was made when D1 and D3 were 2 working days late;
(7) The Claimant has obtained double recovery (damages and claim for price) and failed to inform the Court that US$3.6 million was admitted to be owed to D1.
However they were unable to convince the Judge that the above arguments should result in relief being granted:
“84. I have addressed (1), (2) and (6) when considering whether there was good reason for the defaults. Point (5) is incorrect for reasons already given. Point (4) has been addressed when dealing with the CPR 3.1(7) application. Point (7) is contentious and goes to whether the sanction was appropriate, which is a matter for appeal rather than relief from sanctions.
85. As to (3), the Court is likely to have been aware of the applications since they had been made directly to it. The fact that an application for an extension of time for the witness statements had been made to the court was referred to by Mr Parish in his witness statement, even though it had not been sent to or seen by the Claimant or HFW. An application for an adjournment was refused by Andrew Smith J although it is not entirely clear whether that related only to D2. The fact that the Defendants were requesting an adjournment was referred to in the Claimant’s skeleton argument.
86. D1 also relied on the circumstances set out in the previous version of CPR 3.9(1) and submitted that they all pointed in favour of relief. This provided that: “On an application for relief from any sanction imposed for failure to comply with any rule, practice direction or court order the court will consider all the circumstances including—
(a) the interests of the administration of justice;
(b) whether the application for relief has been made promptly;
(c) whether the failure to comply was intentional;
(d) whether there is a good explanation for the failure;
(e) the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant preaction protocol;
(f) whether the failure to comply was caused by the party or his legal representatives;
(g) whether the trial date or the likely trial date can still be met if relief is granted;
(h) the effect which the failure to comply had on each party; and
(i) the effect which the granting of relief would have on each party.”
87. Given the change in the wording of the Rule I doubt that it is generally appropriate to go through the exercise of considering the previous list of potentially relevant circumstances. No doubt if there is a particular identified circumstance that tells in favour of or against relief then it may be relied upon, but the most relevant circumstances are likely to be the two identified in Mitchell, namely the nature of the non-compliance and the reason for it.
88. In so far as it is appropriate to consider the previous list of circumstances, my findings under each sub-paragraph of the previous rule are as follows:
(a)The interests of the administration of justice are served by insisting on compliance with court orders, as Mitchell makes clear. This is particularly so in the context of a case with a shortly pending trial date.
(b) The application was not made promptly.
(c)The fact that a failure to serve witness statements by the deadline would breach the court order was well appreciated. It was the inevitable result of a deliberate course of action.
(d) There is no good explanation for the defaults.
(e) There was no prior non-compliance.
(f) The defaults were to a significant extent caused by D1 itself.
(g) The trial date is unlikely to be met if relief is not granted.
(h) The failure to comply prejudiced proper and timely preparation for the pending trial.
(i) The granting of relief would cause serious prejudice to the Claimant if, as is likely, the consequence is that the trial date cannot be met.
89. It follows that nearly all the listed circumstances tell against the grant of relief. The only one which favours D1 is (e) – that there was no previous history of non compliance.
90. D1 stressed that if relief is not given then it will have a judgment entered against it despite the fact that it has good defences to the claims and on quantum and despite the fact that it has admittedly overpaid the Claimant on previous transactions. Moreover, such judgment was entered despite the fact that there had been no previous non-compliance and against an unrepresented party. Further, Field J was wrongly persuaded that D1 had disengaged from the litigation, and the significance of that is shown by the different treatment afforded to D2. In my judgment, these arguments go to the appropriateness of the sanction and therefore to an appeal. For the purposes of CPR 3.9 it is to be assumed that the sanction has been properly imposed and complies with the overriding objective, as Mitchell makes clear.
91. In summary, I do not consider that there are other circumstances, still less compelling circumstances, which justify the grant of relief notwithstanding that the non-compliance cannot be characterised as trivial and there was no good reason for the defaults.
92. It follows that in accordance with the robust approach required under the new form of CPR 3.9, as set out in Mitchell, this is not an appropriate case for relief. If D1 is to have any recourse in Action 1213, it would need to be by way of appeal.”
SOME KEY POINTS THAT ARISE
- Applications under CPR 3.7 (1) are only appropriate in cases involving clear misstatement, which is central to the decision made. It is not appropriate in cases involving questions as to why and how the judge may have ended up with the wrong impression of the case. In those cases appeal is more appropriate.
- Loss of legal representation shortly before the deadline does not constitute “a good reason” for the purposes of a relief from sanctions application.
- The considerations in the old CPR 3.9 are not relevant. The two considerations are that outlined in the new CPR 3.9 as outlined in Mitchell.
- Even if two actions are being tried together a breach in one action does not necessarily impact upon the other action.
- This case also highlights the need to be sure about which application to make. Do not confuse CPR 3.9 applications and appeals.