MITCHELL, APPLICATIONS TO EXTEND TIME AND INSOLVENCY: CONTRARIAN FUNDS -v- LOMAS CONSIDERED

The Mitchell case is cited in many different contexts.  In Contrarian Funds LLc -v- Lomas et al [2014] EWHC 1687 (Ch) it was considered in the context of an application for a further extension of time in which to apply to court to challenge the rejection by the administrators of a proof of debt.  This is another example of the Mitchell principles being applied outside the ambit of the Civil Procedure Rules.

THE ISSUES

The action arose out of the administration of Lehman brothers which went into administration in September 2008. Contrarian, as an assignee, filed a proof of debt for £1.465 million.  This was rejected by the administrators on the grounds that the contract was not made with LBIE but with a different company in the group. A formal notice of rejection of proof was filed on the 16th August 2013. Thereafter there were three agreed extensions of time to the 24th January 2014. Contrarian issued an application for an extension of time which was received by the court on the 4th February 2014.

THE APPLICATION OF THE MITCHELL PRINCIPLES IN THESE CIRCUMSTANCES

Mr Jusice David Richards considered the relevant principles in some detail. Historically CPR 3.9 principles had been applied to applications to extend time in these circumstances. The subsequent amendment to CPR 3.9 and the Mitchell principles now apply.

1. The approach to be adopted by the court to an application for an extension of time in which to challenge the rejection of a proof of debt was considered in In re Legal and Equitable Securities plc [2010] EWHC 2046 (Ch), [2010] BPIR 1151, [2011] BCC 354. Lewison J, dismissing an appeal from the Registrar, cited and had regard to the factors then listed in CPR 3.9. He also cited the judgment of HH Judge Norris QC (as he then was) in Warley Continental Services Ltd v Johal [2004] BPIR 353, in which the judge held that weight had also to be given to the need for certainty in a collective insolvency proceeding.

1. Since then, CPR 3.9 has been revised to give effect to the recommendations of Sir Rupert Jackson in his Review of Civil Litigation Costs. As explained in the judgment of the Court of Appeal given by Lord Dyson MR in  Mitchell  v News Group Newspapers Ltd [2013] EWCA Civ 1537, [2014] 1 WLR 795, the purpose of the reformulation of CPR 3.9 was to give effect to a tougher approach to delays in litigation and non-compliance with orders and rules. Although CPR 3.9 requires the court to consider, on an application for relief from any sanction, “all the circumstances of the case, so as to enable it to deal justly with the application”, only two factors are then specified: first, the need for litigation to be conducted efficiently and at proportionate cost and, secondly, the need to enforce compliance with rules, practice directions and orders. The Court of Appeal held that these considerations should now be regarded as of paramount importance and be given great weight. Where the non-compliance is not trivial and there is no good reason for it, the expectation generally will be that relief from sanctions will be refused. Inadvertent delay by the applicant or its solicitors will not be a good reason for these purposes.

1. In the later case of Chartwell Estate Agents Ltd v Fergies Properties SA [2014] EWCA Civ 506, the Court of Appeal affirmed a decision to grant relief from sanctions, having regard to all the circumstances of that case, in particular (but not exclusively) because a refusal to grant relief would deprive the claimant of its claim against the defendants.

1. In considering an application to extend time in the context of litigation brought under the Insolvency Act 1986 and governed by the Insolvency Rules, the approach set out in the current version of the CPR, as explained by the decisions referred to above and other decisions, applies by reason of rule 7.51A(2) (formerly rule 7.51(1)). In this respect, insolvency litigation is no different from any other type of litigation. This approach is, however, less obviously applicable to applications to extend time outside the context of litigation. The whole thrust of Sir Rupert Jackson’s review and the approach of the courts to extensions of time and relief from sanctions is driven by the important public interest in avoiding unnecessary delays in litigation and the need, therefore, to emphasise the importance of complying with time limits set out in rules, practice directions and orders. I am not aware of any similar review having been conducted into the conduct of insolvencies. In any event, the two matters specified in CPR 3.9 are by their terms applicable only to litigation.

1. The time limit for bringing an application to challenge the rejection of a proof of debt is concerned with litigation, in the sense that it is the step which initiates the litigation between the claimant and the office-holder. It may be that this is sufficient to bring into play the modern approach to litigation but, if so, that includes the need to have regard, as recognised by the Court of Appeal in Chartwell Estate Agents Ltd v Fergies Properties SA, to the fact that a refusal of an extension of time will deprive a claimant of its claim.

1. While the particular circumstances of litigation will not be relevant to all applications for extensions of time under the Insolvency Rules, there is nonetheless the clear public interest in ensuring as efficient and expeditious an administration of an insolvent estate as can reasonably be achieved. This suggests the need for all interested parties to comply with the time limits specified in the Rules, unless there are good reasons for requiring more time. Some minor delays may be tolerable but anything more will, in the absence of good reason, undermine the proper administration of the estate, to the detriment of the creditors generally and others with an interest in the estate.

1. Whether a good reason for an extension of time exists will depend on a careful analysis of the facts of the particular case and it is therefore to the detailed facts of this case that I now turn.

THE EXTENSION WAS REFUSED ON THE FACTS OF THAT CASE

The judge then reviewed the facts relating to the application. There were a number of factors.

• The administrators had written a letter on the 16th August 2013 giving reasons for the rejection of the debt and inviting further documentation. There was no substantive reply to that letter for 12 months.
• The notice of rejection had been served on the 16th August 2013. The administrators had subsequently agreed a number of extensions of time.
• The first and foremost issue was whether Contrarian could demonstrate good grounds for a further extension of time. It could not do so. It had known of the administrators stance since August 2012.
• Contrarian had been “seriously dilatory in its attempts to support its claim.”
• There was nothing in Contrarian’s submissions that there was still much to be done in the actual administration. It was vitally important to the administration that the momentum in dealing with  claims was maintained.
• The administrators had already been generous to Contrarian and no further extension was appropriate.