DENTON PRINCIPLES APPLIED TO A CASE WHERE A CLAIMANT FAILED TO GET PERMISSION TO ISSUE PROCEEDINGS

Although the Denton principles are much more settled it is prudent to keep a weather eye on cases where they are considered. His Honour Judge Davis-White QC (sitting as a judge of the Chancery Division in Leeds) applied the Denton principles in a case today Wilton UK Ltd & Anor v Shuttleworth & Ors [2018] EWHC 911 (Ch).

“I am acutely aware of the need not to encourage (a) the subversion of the statutory process by bringing about rolled up applications such as this as routine (though in some cases it may well be sensible to agree the same) and (b) the need to avoid encouraging claimants bringing these claims to think that they can sit back and if the merits are otherwise on their side, rely on the court giving retrospective permission. However, I do take into account the point that, in light of this judgment, the appropriate approach will have been reinforced and claimants will have less excuse for taking such a course as was taken by the claimant in this case.”

THE ISSUES

The judge was considering whether permission to continue derivative company proceedings should be given pursuant to s.263 Companies Act 2006 and whether retrospective permission should be granted to begin the proceedings – thereby validating certain steps that should have been taken only with permission of the court. The Denton issues related to the grant of retrospective permission.

KEY POINTS

  • The Denton principles applied to this type of application, rather that the principles relating to late or non-service of the claim form.
  • It was appropriate to grant the applicant’s application on the facts of this case.
  • However the very existence of this judgment should serve to prevent parties from taking a similar line in the future.  Permission of the court should be obtained before issue.

THE JUDGMENT

The judge reviewed the matters in detail. He then considered what principles should be applied to the claimant’s application for retrospective permission to issue proceedings and whether that discretion should be exercised.

“Retrospective permission: the principles
    1. Having decided that I would grant prospective permission to continue with the proceedings, and that I have jurisdiction to grant retrospective permission, the remaining issue is whether I should grant retrospective permission. If I should refuse such retrospective permission, then it would follow that prospective permission should also be refused.
    2. The defendants’ position was that the appropriate principles to be applied in this context were those which apply to the obtaining of relief from sanctions under CPR r 3.9. In the course of oral submission discussion also took place regarding a test analogous to that under CPR 16.5(2). In the light of the decision of the Supreme Court in Barton v Wright Hassall [2018] UKSC 12[2018] 1 WLR 1119, the defendants’ submitted further written submissions regarding the application of the principles to validate retrospectively non-compliant service of originating process under CPR r6.15(2) to the case before me. Further written submissions dated 23 February 2018 on this issue were received by me from Mr Ayliffe QC on that date. The claimant’s position (at least at one point) was that permission was at large, taking into account all of the circumstances, and that the essential test was “the best interests of justice” and that neither cases regarding the discretion to grant relief from sanctions nor that relating to the discretion to validate service under CPR r6.15(2) was an appropriate analogy. However, by his written submissions (on their face dated 5 February 2018 but actually dated 5 March 2018) I understood Mr Pipe to accept the applicability of the Denton principles (as subsequently developed).
    3. Although there is an initial attraction to the idea that CPR 6.15(2) is dealing with non-compliant service of a claim form and I am dealing with non-compliant service of a claim form (because prior court permission was not obtained), in my view this is an oversimplification.
    4. First, the question of whether retrospective permission should be given as regards particular steps in a derivative action taken without permission is not limited to cases where the step is service of the claim form. It could (as here) cover service of particulars of claim or it could relate to later steps in the litigation (for example where permission had been down to a certain stage but steps thereafter had been taken without permission). Thus, although in this case service of the claim form is one of the relevant steps for which permission is sought, the question would not necessarily arise in that context.
    5. Further, the underlying issue is one as to authority to take the relevant step in the proceedings and that is primarily an issue between BMO and the claimant rather than between the claimant and the defendants. It is clear that where there is a question as to authority to bring proceedings the defendant is entitled to (and indeed should) challenge the absence of authority at an early stage rather than leaving it to its defence. Where the proceedings are commenced without authority, and in areas where the court cannot grant authority in the proceedings, the court may well permit an adjournment so as to enable the question of authority to be taken further and if appropriate resolved (see e.g. cases where proceedings are brought in the name of a dissolved company). In such cases, authority may be conferred retrospectively by the company itself being restored to the register and adopting the proceedings. If that is correct it is difficult to see why steps in derivative proceedings could not be subsequently validated, for example, by company resolution and the adoption of the proceedings by the company. Thus, although to some extent the rules regarding derivative proceedings confer some protection on the defendant and the defendant is usually (although this is a discretionary matter) permitted to participate in the issue of whether authority to continue proceedings should be granted by the court, the rules are not there to protect the defendant in the way that the rules regarding service of originating process are for the defendant’s protection.
    6. Accordingly, the distinction drawn by Lord Sumption between cases involving relief from sanctions, itself encompassing weight being given to the factor of the disciplinary element of the CPR, and the provisions of CPR r6.15 is not one that, in my judgment, holds good for retrospective permission regarding the bringing of derivative proceedings and a factor which puts the exercise of the relevant discretion in that context on the CPR r6.15(2) side of the line.
    7. True it is that I have held that the ability to grant retrospective permission and the effects of permission not having been granted are regulated by statute rather than the CPR. Nevertheless, in my view the process and timing of permission being regulated by the CPR (just as the process and timing of permission to appeal is regulated by the CPR though the requirement for permission is (largely) statutory see e.g. s54 Access to Justice Act 1999), the failure to obtain permission should be viewed as carrying a sanction (see, by analogy, the position regarding appeals).
    8. Accordingly, I also reject the claimant’s case (at least as I understood it at one point to be) that the matter is simply one at large to be considered against all the circumstances and that I should simply apply a “best interests of justice” test.
    9. In reality, each of the three tests, that under CPR r6.15(2), that under Denton for relief from sanctions and that advocated by the claimant of “the best interests of justice” are directed at the court achieving a just result in all the circumstances. The circumstances in which the issue arises are capable of giving rise to a different structure of questions to determine what is just. In my judgment, each test involves application of a different structure to reach the “just” result in that each involves particular questions being asked in a structured process so as to assist in identifying the key considerations. Further, each results in different emphasis or weight being given to particular factors. Thus, to take one example, the disciplinary factor of encouraging rule compliance and effect on third parties carries less if any weight in carrying out the CPR r6.15(2) test compared with the Denton test.
Retrospective Permission: the facts
    1. Before applying the relevant test, there are two major areas that I have to consider. First, the circumstances and reasons why permission was not sought in time and secondly whether the claims or any of them are now barred by limitation (subject to the exercise of my discretion).
    2. The letter before claim in this case was sent on 6 June 2015.
    3. The claim form and the application notice were originally sent to the court under cover of a letter dated 9 November 2016 asking that the claim form be issued for service by the claimant’s solicitors, Clarion. The claim was described as “being issued for limitation reasons”. So far as the application for permission was concerned, the letter asked the court for time for the claimant to file particulars of claim and a supplemental witness statement which, the letter anticipated, would be filed “within 4 to 6 weeks”. A “fair determination” of the application was said to require consideration of the additional evidence and particulars of claim. The court was told that once the additional material was filed, the court’s attention would be drawn to the letter “so that the Court may progress the matter”. In those circumstances the application was not issued and the application was not put before a Judge. The claim form however was duly issued at that date, thus stopping the running of the limitation period.
    4. By letter to the court dated 21 December 2016, Clarion apologised for the delay. They explained that the delay had been caused by a recent family bereavement suffered by Counsel and anticipated that the particulars would be with the court in early January so that thereafter the court could consider the application for permission to proceed. The court replied to confirm that no Judge had yet seen the file and that the court would await the particulars in January 2017 before putting the application before a Judge.
    5. By letter dated 2 February 2018, Clarion wrote to the court to say that it had taken counsel longer than anticipated to complete the drafting of particulars of claim and that he anticipated having them ready in the week commencing 6 February 2017.
    6. By letter dated 20 February 2017, addressed to Ward Hadaway, solicitors acting for the Banks companies and others, Clarion asked Ward Hadaway if they had instructions to accept service on behalf the named persons who were the individuals in the Direct Claim.
    7. By various letters dated 6 March 2017, Clarion served the derivative claim form and the application for permission and supporting evidence on the defendants to those proceedings. This was a matter of days before expiry of the four-month period of validity for service of the derivative claim form.
    8. The particulars of claim were lodged with the court on 8 March 2017. Also, under cover of letters dated 8 March 2017 from Clarion, the particulars of claim in the derivative proceedings, plus response packs, were served on the defendants to the derivative proceedings. The letter went on to say that “The matter is with the Court and no further steps need to be taken pending the Court’s determination on permission to proceed.
    9. By letter dated 16 March 2017 Ward Hadaway asked for confirmation that the court’s permission had been obtained in accordance with CPR r19.9(4) “in advance of purporting to effect service“.
    10. Despite a chasing letter from Ward Hadaway dated 17 March, it appears that Clarion did not reply substantively. By letter dated 21 March 2017, Ward Hadaway said that they assumed that court permission had not been obtained and they enclosed copies of acknowledgements of service filed with the court, indicating that it was intended to contest jurisdiction and that an application would follow within 14 days.
    11. Under cover of a letter dated 30 March 2017, Clarion lodged with the court the second witness statement of Mr Wilkes (and exhibits) and asked that that witness statement be put before the Judge with the application dated 9 November 2016.
    12. Clarion responded to Ward Hadaway, by letter dated 31 March 2017, that the question of whether the claim should be pursued was one between the claimant and BMO and that within the existing application for permission they were “seeking approval of the course of action that we have taken“.
    13. Under cover of a letter dated 31 March 2017 the second witness statement of Mr Wilkes in support of the application for permission was served.
    14. On 3 April 2017 the defendants issued their application for an order that the court has no jurisdiction to try the claim and setting aside service of both the claim form and the particulars of claim.
    15. Under cover of letter dated 4 April 2017, Ward Hadaway served on Clarion the defendants’ application dated 3 April 2017 and supporting evidence.
    16. The matters were referred to District Judge Kelly who ordered that both matters should be listed before me for an oral hearing.
    17. By letter dated 13 April 2017, Ward Hadaway raised the question of whether I should first deal on paper with the first stage of the permission application under the derivative procedure, then hear the defendants’ application that there was no jurisdiction to hear the claim and then, only if that was not successful, should I have a separate hearing to consider the second stage of the permission application. I considered that this was potentially creative of wasted costs and delay taking up potentially 3 hearings or determinations by the court rather than having the matter dealt with at one hearing. I declined to hear the (then) two applications separately.
    18. As a result of the refusal of Ward Hadaway, on behalf of the defendants, by letter dated 4 May 2017 to accept that the question of possible retrospective permission was sufficiently encompassed by the existing application of 9 November 2016, the further application dated 22 June 2017 was made by the Claimant.
    19. I turn now to the second area that I have to consider, which is that of limitation. The assumption has been that the earliest relevant damage suffered was on or about 16 November 2010 when Option 2 was entered into. The claim form was issued on 9 November 2016 within 6 years of the grant of Option 2. It is accepted that 6 years is, in general, the limitation period. The result would be that most if not all of the claims are well outside the 6 year period were a new claim form to be issued now.
    20. Mr Pipe however submits that the claims against the directors are ones of dishonesty and that accordingly no period of limitation applies to them by reason of them being treated as trustees for the purposes of s21 Limitation Act 1980 and the causes of action against them falling within s21(1)(a) Limitation Act 1980. He submits that retrospectively to grant permission under CPR r19 does not remove any existing Limitation Act defence. I largely accept this submission.
    21. This however leaves the (alternative) claim against Mr Banks based on dishonest knowing assistance in director’s breaches of trust and the similar claim against BGL. It seems to me that both of these fall outside s21(1)(a): see Williams v Central Bank of Nigeria [2014] UKSC 10[2014] AC 1189. Further, as Mr Pipe acknowledged, there are problems as regards the conspiracy and confidential information claims (at least as regards non-directors). Mr Pipe submits that, so far as the claims in knowing assistance are concerned, Mr Banks (assuming he is not a director) falls within the “privy” head of s21(1)(a) Limitation Act 1980. As I understand it, he accepts that on any view BGL would not fall within s21(1)(a). He also submits that in light of Burnden Holdings (UK) Ltd v Fielding and Anr [2018] UKSC 14 some claims are not barred by virtue of s21(1)(b) Limitation Act 1980. However, at this stage it suffices to say that I am not satisfied that there are no claims that would be statute barred.
    22. There are it seems to me at least three possible answers to the limitation problems:
i) To refuse permission retrospectively (and therefore prospectively) and to leave the claimant to bring fresh proceedings so that the limitation point is then determined by the court and, if any claims are barred by limitation for the claimant to be bound accordingly;
ii) To give retrospective permission as regards those claims where it is clear that limitation does not bar the claim but to refuse permission where it is arguable that they are bound;
iii) To give retrospective permission.
I return to consider this issue when applying the Denton/Mitchell principles.
Application of the Denton/Mitchell principles
    1. The relevant principles were agreed. I need not cite them in detail. My summary should not be taken as any more than a shorthand indication of the applicable test rather than a full description of the same. I need to consider:
(1) The seriousness and significance of the breach;
(2) The reasons why the default occurred;
(3) All the circumstances of the case (including those set out in CPR r3.9(1)(a) and (b)).
    1. In my assessment the breach was serious and significant. The making of an application for permission was simply not pursued and instead the proceedings were continued with. One point of the procedure is to weed out unmeritorious claims and to ensure that defendants (and companies) are not troubled by them. Although this has not turned out to be such a case, the breach of the rules (and the statute) was serious and/or significant.
    2. The reason given for not putting the matter before the court was essentially one that it would be better for the evidence to be in a better state than proceeding on inadequate evidence. In my view, this is not a satisfactory explanation. The matter should have been placed before the court well before expiry of the validity of the claim form so the court could judge whether the case should be got on with and make directions accordingly and/or whether there should be limited permission to serve documents or not. Instead of that the claimant took the matter out of the court’s hands. Although I understand some of the reason for the delays in getting the case ready for the hearing that eventually took place I am not satisfied that they can be fully excused.
    3. Turning to, and in looking at, all the circumstances, I take into account that the breach in this case was not abusive in the sense of recklessness or a deliberate self-serving breach. The breach occurred in circumstances where the decision was an error as to what the overriding objective required rather than a deliberate abuse.
    4. I also take into account the fact that the defendants have not in reality been much harmed by the delay. At most an inter-parties application may have occurred a little earlier. The defendants were however properly served in terms of mode and time of service. Their complaint is one of lack of authority, which can now be rectified.
    5. I take into account the fact that all of the facts will have to be gone into on the Direct Claim and that the Derivative Claim of itself should not add too much to the overall costs (though I also bear in mind the difference in the identity of the parties in the two proceedings and particularly the defendants). It would be unjust if causes of action were made out in the Direct Claim but which were only vested in the company and which could not be pursued because I now refused relief.
    6. So far as limitation is concerned, the purpose of the requirement of permission from the court is primarily to protect the relevant company. The defendants were served by proper mode and on time. However, service was without authority. If authority is now provided (or had been by the company) it is difficult to see how they could object. Further, had the correct procedure been followed permission would have been granted ex parte and would have permitted service if, as seems reasonable to assume, an inter parties hearing could not have been accommodated prior to expiry of the period of validity of the claim form for service. In the circumstances, I do not regard limitation as a factor which should prevent my now granting permission with retrospective effect.
    7. I am acutely aware of the need not to encourage (a) the subversion of the statutory process by bringing about rolled up applications such as this as routine (though in some cases it may well be sensible to agree the same) and (b) the need to avoid encouraging claimants bringing these claims to think that they can sit back and if the merits are otherwise on their side, rely on the court giving retrospective permission. However, I do take into account the point that, in light of this judgment, the appropriate approach will have been reinforced and claimants will have less excuse for taking such a course as was taken by the claimant in this case.
    8. I also take into account the ironic fact that the court has only been troubled by one hearing regarding the question of whether permission should BE granted rather than a two-stage consideration of the issue. Against this is to be balanced the point that much of the time has been taken up with the retrospectivity arguments (jurisdiction and exercise of discretion), which has expanded the argument and led to the matter being dealt with over a longer time frame than would otherwise have been the case..
Conclusion:
  1. I grant retrospective permission to continue with the claim and also prospective permission, subject to further argument, down to a period after completion of the disclosure process.”