THE DUTY OF FULL DISCLOSURE ON WITHOUT NOTICE APPLICATIONS: ANOTHER EXAMPLE OF PROBLEMS OCCURRING

February 3, 2017 · by · in Applications, Extensions of time, Service of the claim form

The New Year’s resolution for litigators that I recommended this year came (apparently) as a surprise to many: “Think very carefully before, during and after, making an ex parte application of any kind.”  The judgment of Mrs Justice Andrews DBE today in Gunn -v- Diaz [2017] EWHC 157 (QB) highlights that point.

“...it has never been an answer to non-compliance with this fundamental duty that compliance is considered to be too burdensome. Compliance, however burdensome, is the price that an applicant must pay for obtaining an order without notice.”

KEY POINTS

  • The duty of full disclosure when making a without notice application extends to the party disclosing matters of law which may be adverse to its case.
  • The failure to disclose the significance of a relevant Court of Appeal decision when the without notice application was sought in the current case was a significant failure.
  • The failure was not intentional.  However the failure militated against the court exercising its discretion in favour of the claimants in relation to the matters before it.

THE CASE

The claimant was seriously injured in an accident in  Costa Rica. She obtained permission, on a without notice basis, to serve the defendants abroad.  The defendants sought to set aside that order. One of the grounds that was argued was the absence of full disclosure.

 

THE NON-DISCLOSURE

  1. The application for the extension of time for service of the claim form in March 2016 was necessarily made “without notice”. Like any other without notice application, there was a duty on the claimants, as applicants, to make full and frank disclosure of all material facts known to them, or which they would have known if they had made reasonable inquiries. On any application made without notice, the party making the application must identify all matters relevant to the application, including all matters, whether of fact or of law, which may constitute a ground for not granting the order sought. The materiality of a particular matter is to be decided by the court and not by the applicant or his legal advisers: see Orb ARL v Fiddler [2016] EWHC 361 (Comm) per Popplewell J at [36].
  2. The importance of the duty of disclosure to the administration of justice is stressed in the commentary in the White Book 2016 at 25.3.5. Although this passage appears as a commentary to the rules concerning injunctions and other interim remedies (which is the context in which applications are most frequently made without notice) it conveniently sets out an applicant’s disclosure duties in respect of any without notice application, and cites the authorities relevant to a wide spectrum of such applications. Specific reference is made to Masri v Consolidated Contractors International Co SAL [2011] EWHC 1780 (Comm) in which the importance of observing this duty in the context of applications for permission to serve process outside of the jurisdiction was emphasized by Burton J. He pointed out that what is being sought is the exercise of an exorbitant jurisdiction, bringing a foreign defendant within the jurisdiction, even if only to incur the costs and inconvenience of fighting a jurisdiction application successfully.
  3. That duty was owed to the court, and as it appeared to me that it had been breached, I raised the issue during the hearing of this application, as it seemed to me to be relevant to the exercise of my discretion. Because the point had not been taken by INS, and the evidence filed in support of the application for the relevant (second) extension of time was not then before the court, I gave directions for the service of further evidence and submissions following the hearing.
  4. Pursuant to those directions, Mr McClorry has filed a further witness statement exhibiting the application notice seeking the second extension of time, and his witness statement and evidence in support of it dated 8 March 2016. Mr McClorry states that there is nothing in the White Book to suggest that the evidence in support of the application for an extension of time should be directed at anything other than the reasons why service had not yet been effected, and why an extension of time was necessary or desirable. He plainly overlooked the passage at 25.3.5 to which I have referred.
  5. A claimant’s solicitor cannot just rely on the essentials: he should also direct his mind specifically to the question whether there is anything else that the court would wish to know before deciding whether to make the order, or which might have an impact on its decision. Had he thought about it, it should have been obvious to Mr McClorry that the court would wish to know that in consequence of a decision of the Court of Appeal, handed down almost nine months earlier, the order had been obtained on the basis of a misinterpretation of the rules permitting service out of the jurisdiction under the only gateway relied upon. Therefore, the sole legal basis for the service that the claimants were asking the court for more time to effect had disappeared.
  6. Mr Palmer made the bold submission that the fact that the court had made an order for service that it had no power to grant under the rules as properly interpreted, was irrelevant to the application for an extension of time for service, and that Mr McClorry was “quite right” not to include reference to the decision in Brownlie in his evidence in support of the application. The claimants were forced to apply for an extension of time due to circumstances beyond their control relating to the slow machinery of the process of service in Costa Rica, and that was all the court needed to be told.
  7. I cannot accept that submission. True it is that in Collier v Williams [2006] 1 WLR 1945, at [131] the Court of Appeal said that in an application for an extension of time for service of a claim form the “critical inquiry” that the court undertakes is an inquiry into the reasons why service has not yet been effected and whether any fault can be attributed to the solicitors. However, the Court of Appeal did not say that was the only factor to be weighed in the exercise of discretion, and in any event it was not addressing circumstances like this, which are not likely to arise in the general course of such applications. In an earlier part of that judgment, at [38], in the context of addressing the more common situation where the extension of time for service would deprive the defendant of a limitation defence, the court stressed that it was “highly desirable that full consideration (with proper testing of the argument) is given to the issue of whether the relief sought should be granted.” It also pointed out that if an application to set aside service were made in future, the applicant for an extension of time may well be worse off than he would be if the extension had been refused in the first place.
  8. Whilst the court would naturally want to know why service had not been effected within the time allowed for doing so, and that this was not due to some fault on the part of the claimant’s solicitors, it would want to know anything else that was relevant to the exercise of its discretion to extend time. It was plainly a material factor in the exercise of that discretion that in consequence of the clarification of the law by the Court of Appeal in Brownlie, permission had been obtained to serve the claim form out of the jurisdiction on an erroneous, too wide interpretation of PD6B 3.1(9)(a). Therefore, by the time the extension was sought, it was apparent that there was no basis upon which the court could exercise extra-territorial jurisdiction over any of the defendants in respect of their claims. The consequence of this was that the claimants were asking the court to extend time for service of a claim on foreign defendants over whom the English court had no jurisdiction, pursuant to an order that should not have been granted, and which would probably be set aside as a matter of course if the foreign defendants, once served, made such an application. If the court felt that in the light of that information the matter was inappropriate for disposal on the papers, it could have called for a hearing.
  9. The claimants’ solicitors were aware of the Court of Appeal’s judgment; they ought to have been aware of its potential impact and that, at the very least, it decided that the relevant rule on which they had relied when obtaining permission to serve out, had been misinterpreted (to their clients’ advantage). They ought to have told the court about it, so that it could decide what to do. I accept that the non-disclosure was not deliberate, but that does not mean that it was not culpable. A reasonable solicitor, particularly one practising in the field of personal injury claims as Mr McClorry does, would have appreciated the ramifications of Brownlie, and would have drawn it to the court’s attention.
  10. Mr Palmer submitted that to require the claimants to reveal the decision in Brownlie to the court would be to place too great a burden on them and that it is not for the court to change its mind, once made up, on reconsideration of the facts; but with respect, that submission misses the point. The court would not be changing its mind about the original grant of permission (though it would have had the power under CPR 3.1(7) to revoke the order permitting service out). It would be deciding whether or not to allow more time for service of an order that purported to exercise an extra-territorial jurisdiction that did not exist on the true interpretation of the rules, thereby potentially causing the claimant (or those effecting service abroad) to waste more time and expense in serving it, and the foreign defendant(s) to incur unnecessary expense in applying to set it aside or else run the risk, as Sixt did, of being deemed to have accepted the court’s jurisdiction. In any event, it has never been an answer to non-compliance with this fundamental duty that compliance is considered to be too burdensome. Compliance, however burdensome, is the price that an applicant must pay for obtaining an order without notice.
  11. This does not mean that, when seeking an extension of time for service, claimants will always be required to anticipate all possible arguments that might be raised on an application to set aside the order for service which were not drawn to the court’s attention when the order was originally sought, or to inform the court of any changes in factual circumstances since the order was granted that might have a bearing on the merits of such an application. Each case must depend on its own facts. The position in this case is clear-cut. The decision in Brownlie was a statement of fundamental legal principle that went to the very heart of the court’s extra-territorial jurisdiction. A lack of jurisdiction emanating from the clarification by a higher court of the scope of the very provision relied on to obtain permission, is something quite different from any other dispute about the merits of the grant or refusal of the order. It is no great burden to impose on claimants to require them to be frank with the court about a matter of such fundamental importance.
  12. I accept, of course, that the order for service out was valid at the time it was granted, and it was not automatically nullified by the decision in Brownlie. If the court, when fully informed, had thought that there was room for argument about the impact of Brownlie on the order it might have given the claimants (or maybe the relatives) the benefit of the doubt and allowed the extension of time for service – but at least it would have done so after consideration of the full picture, and almost certainly after hearing legal argument about it. However, I cannot conclude that the non-disclosure made no material difference to the outcome of the application. Indeed, I consider that it is far more likely that on being apprised of the true situation, and having considered the Court of Appeal’s reasoning in Brownlie and the arguments that I have had to consider about its impact on the relatives’ claims, the Master would not have extended the time for service of the claim form in April 2016.
  13. In any event, is within the court’s power to discharge an order obtained by non-disclosure even if, after full inquiry, the court takes the view (which I do not) that the order was otherwise justified, and would probably have been made even if there had been full disclosure. For the purposes of the present application, I shall consider in due course what consequences, if any, should flow from the non-disclosure.
  14. There is no mention of the decision in Brownlie or its ramifications in the evidence filed in support of the application for judgment in default either, which was also made without notice. The court plainly did not know that the second extension of time for service referred to in Mr McClorry’s evidence in support of that application had been obtained by material non-disclosure. At least as against Sixt, it would have been relevant to the exercise of the court’s discretion to know that the claimants were seeking to take advantage of the passivity of Sixt to obtain a judgment in circumstances where the claims against it were matters over which the court unarguably had no jurisdiction at the time when the order for service was made, and that the claimants’ legal advisers were, or should have been aware of the lack of jurisdiction when they sought the extension of time in March 2016, and when the claim form was served on Sixt.
  15. It would have been possible to mount an argument, based on CPR 11.5 and Sixt’s deemed submission to the jurisdiction, that the claimants were still entitled to go ahead and enter judgment against it, but at least the court would have been in possession of all the relevant information when deciding whether or not to allow that to happen. It was only as a result of the failure by Sixt to comply with the relevant procedural rules consequential on service that it was deemed to have accepted that the court had jurisdiction. I accept that the effect of CPR 11.5 is that a defendant with an otherwise valid objection to the jurisdiction may lose it, and that it could be said that he only has himself to blame if he fails to raise that objection at the appropriate time. However, if that defendant should never have been served with the proceedings, and would not have been, had the court been told the full story at the time when the relevant extension of time for doing so was sought, the court may have shared my view that it would not be fair to allow the claimant to enter judgment in default against him.
  16. Faced with the full picture, the court may well have declined to allow judgment to be entered in default, and ordered a hearing at which the claimant’s legal representatives would have been asked to show cause why the order permitting service on Sixt and/or the order extending time for doing so should not be set aside of the court’s own motion.
  17. It is obvious from this history of the matter that the claimants have obtained significant forensic advantages from their non-disclosures. They seek to obtain a further forensic advantage now, because they contend that Sixt, having accepted the jurisdiction, can be relied upon as the anchor defendant against whom proceedings will be continuing in this jurisdiction, at least for the purposes of assessment of damages, and that INS is a necessary or proper party to those proceedings. In the alternative, they rely on the as yet unserved Citi.
  18. I will address the consequences of the non-disclosure in due course, but first I will consider the claimants’ application as if there had been no material non-disclosure or if the non-disclosure had not been culpable.
THE RESULT
The judge held that the claimants could not bring themselves within alternative routes so that the court had jurisdiction.  However she then went on to consider how the court should exercise its discretion.
JUDGMENT ON DISCRETION
    1. Finally, it is important to remember that the claimants are seeking the exercise of the court’s discretion to allow them to rely on a different gateway from the one on which they originally relied. I have already held that permission to serve out could not have been lawfully granted under the “necessary or proper party” gateway on the date when the order was originally sought, as there was no anchor defendant who could have been served under the tort gateway. I have also explained why I would refuse permission to serve INS out of the jurisdiction under the “necessary or proper party” gateway if a fresh application were to be made today. For those reasons alone it would be inappropriate for the court to exercise its discretion to permit reliance on that gateway so as to defeat INS’ application.
    2. However, even if I had concluded that there was a good arguable case that the claims against INS fell within the “necessary or proper party” gateway, and even if I had otherwise considered that this jurisdiction was clearly and distinctly the appropriate forum for resolution of those claims, there are two further and independent reasons why I would refuse permission to the claimants to rely on that alternative gateway as a matter of discretion.
    3. The first is that, as I have already indicated, it would be wrong in principle to allow any party to take advantage of its service on Sixt, and Sixt’s subsequent inactivity, as a vehicle for bringing in another defendant to the English proceedings, when the claim against Sixt was one for which the party in question should not have obtained permission for service out of the jurisdiction in the first place. That is so irrespective of whether I am right or wrong in my view that these considerations arise at an earlier stage of the analysis.
    4. The second is that it would be unjust to INS for this court to allow these claimants to achieve any advantage from their culpable failure to disclose all material facts to the court at the stage when they sought the second extension of time for service of the claim form. As I have said, the court has the power to set aside an order obtained by non-disclosure even if it might still have been granted had full disclosure been made by the party who obtained it. This is not a case in which the extension of time for service is likely to have been granted. It is highly probable that if the decision in Brownlie had been drawn to the court’s attention when the second extension of time for service out was sought, the extension would have been refused. The claim form would never have been served on Sixt, and the claimants would not be in a position to argue that it may still be served on Citi. The consequence of that is that neither of those parties would even have been candidates for the anchor defendant.
    5. In any event, regardless of whether the extension would have been granted, and despite the fact that it was not deliberate, this was a very serious breach of the duty to make full and frank disclosure, for which there is no excuse. The fact that the delay in service was due to circumstances outside the control of the claimants’ solicitors is irrelevant. In my judgment the claimants should be deprived of any forensic advantage gained by their solicitors’ failure to abide by that duty. The additional non-disclosure at the time of the default judgment application makes the position of the claimants when asking the court to exercise a discretion in their favour even less attractive, but the non-disclosure which really matters for the purposes of the exercise of judicial discretion is the earlier in time. This was not a non-disclosure that would have made no difference, it was serious, and the consequences of it should be visited on the party which was responsible.
CONCLUSION
  1. For those reasons, the application by INS to set aside the Order for service of the claim form and Particulars of Claim on it out of the jurisdiction and for declaratory relief is granted.

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