In MKG Convenience Ltd, Re [2020] EWHC 547 (Ch) HHJ David Cooke refused the defendants’ application for relief from sanctions following a failure to comply with a peremptory order in relation to disclosure.   The sanction was severe, however the circumstances of this case did not merit an order for relief from sanctions.


“Severe as it is, that sanction is not disproportionate.”


The applicants are the liquidators of a company that ran a number of small convenience stores. When it was wound up the company was found to have no assets. They brought an action seeking recovery of payments made in relation to the transfer of  the company’s assets prior to winding up.


The court made an order for disclosure.  That was not fully complied with and, the respondents consented to a peremptory order.

“Unless the Respondents do comply with paragraphs 2 and 3 of the Consent Order dated 26 April 2019… by 4 pm on 24 June 2019:

(a) their evidence be struck out;

(b) they be debarred from defending the proceedings; and

(c) judgment be entered in favour of the Applicants. “


The applicants argued that the respondents had failed to comply with the peremptory order.   There was an issue as to whether compliance had taken place. The judge found it had not.


Conclusions as to breach

    1. I conclude therefore that breaches of the unless order have been established in the following respects:
i) All the documents subsequently disclosed were necessarily not disclosed by the date they should have been. It has not been suggested that any of them fell outside the disclosure orders made.
ii) Failure to produce or disclose and explain the absence of accounting records of URL and KKS by the due date or at all.
iii) Failure to disclose the existence of all bank accounts of all three respondents by the due date.
iv) Failure to produce or disclose and explain the absence of all pages of statements on all the bank accounts by the due date.
v) Failure to disclose utility invoices in respect of the Strahdene Rd premises.
    1. It was not submitted that the terms of the order required any further order or other step before the sanctions took effect, and accordingly those sanctions are in effect unless the respondents obtain relief from them.



The judge then considered, and refused, the respondents’ application for relief from sanctions.
Relief from sanction
    1. Mr Brown accepted that the question of relief is to be approached in the three stages identified in Denton v White [2014] EWCA Civ 906, ie
i) Identify and assess the seriousness and significance of the breach. Has it for instance imperilled hearing dates or disrupted the conduct of the litigation?
ii) Consider why the breach occurred. If the breach is not serious or significant and/or there is a good reason for it, relief will usually be given.
iii) If it is serious or significant and there is no good reason, evaluate all the circumstances including the proportionality of the sanction to the breach, bearing in mind the importance of conducting the litigation efficiently and complying with the rules and orders,
  1. Mr Brown submitted that any breach was not serious or significant. It has not imperilled any hearing, as no trial or further hearing date has been set. There is an outstanding direction for witness statements, but time can be extended to take account of the disclosure now given without prejudice to either side. To the extent Mr Komaleswaran did not comply with the unless order, he has sought to do so and disclosed a considerable volume of documents; it is not as if he has sought to ignore his obligations, but he failed to understand them fully. He has done his best to comply, albeit belatedly. Matters have been confused by the applicants making different requests for documents said to be missing at different times, and by their application which wrongly focusses on the merits of the case overall rather than the alleged breach and how it could be rectified.
  2. That submission was of course made at the hearing in November and before the further accounts came to light. Shortly after they were revealed Wilkes came off the record for the respondents and Mr Brown was not instructed to attend the further submissions hearing in February 2020.
  3. In relation to the third stage, Mr Brown submitted that the sanction is Draconian in relation to the breach, as it deprives the respondents of any opportunity to defend what are substantial claims. In relation to the claim against Mr Komaleswaran personally, that depends on whether he is shown to be a de facto or shadow director, but any breaches of the disclosure obligation do not go to that issue, so it would be unfair to deprive him of a defence to which any missing documents could not have been relevant.
  4. In principle, compliance with a disclosure order is an important matter, the more so when it has been backed up by an unless order on account of prior failure to comply. Disclosure is one of the essential parts of the English judicial process, and any failure to undertake it properly potentially affects the court’s ability to deal with the case before it fairly. That said, it is obviously the case that breaches of a disclosure order may vary from the trivial to the very serious- the content of the obligations to be complied with is set out in some detail in the relevant PD and one could envisage breaches ranging from those of pure form to the concealment of vitally important documents. Failure to produce documents, for instance, may be very serious if they are not produced at all, or relatively trivial if the deadline for production is missed by a small margin.
  5. It is not the case therefore that any failure to comply with a disclosure order is automatically serious or significant; it is necessary to consider the nature and degree of the failure and what its impacts might be on the conduct of the litigation.
  6. In this case however, in my judgment the failures to comply were serious and significant. The issues in this case revolve around the truth or otherwise of the explanation the respondents have given for the effective disappearance of the business and assets of a company that was apparently thriving until shortly before its liquidation. The liquidators come to the case with no prior knowledge of the facts and so are dependent on what they can ascertain from third parties. The explanation they have been given for the disappearance of the business is surprising, and there is a significant amount of material they have discovered that suggests that explanation is open to doubt. There is an obvious incentive for anyone who may be liable to claims by the company to suppress disclosure of documents that may be adverse to him. The liquidators rely greatly on proper performance of those with obligations to them or the company in order to undertake their own functions. In the context of litigation, it is if anything more important than usual to be satisfied that disclosure obligations are properly performed, because the liquidators may have less opportunity than other litigants to perform their own cross checks to pick up non-compliance.
  7. The extended disclosure sought was intended to produce documents that would allow the explanations given to be tested, by showing whether URL in particular had acted in relation to third parties as if it were the owner of the businesses and/or continued to incur and pay for liabilities associated with trading any of the shops, or whether as it said MKG had transferred operation of those shops to Sandhu News. All the information they might contain was potentially relevant to resolving that issue one way or the other. A full picture was vital, since anything less would increase the possibility that information was being selected to advantage the respondents.
  8. Against that background, the breaches I have found are in my judgment serious. I have not upheld those complaints that might be unfounded if the respondents’ case on the facts were true, or those that might not show a breach if that case is false, but only those that must be well founded whether that case is true or not. Failure to disclose all the bank accounts and all the statements relating to those accounts is particularly serious and something for which there is no good reason.
  9. Mr Komaleswaran, who effectively represents the position of all the respondents for these purposes, failed to reveal the existence of numerous plainly relevant bank accounts, and, as I find, deliberately maintained the concealment of those accounts up to and after the hearing in November, showing a continuing intention to avoid disclosing potentially damaging material as long as he could possibly do so.
  10. Similarly the almost complete failure to disclose any accounting records of either respondent company is very serious. I have rejected the explanation given as incredible. Such records may shed light on what has gone on, and the failure to produce them deprives the liquidators of an important source of information.
  11. The conduct of the litigation has been adversely affected both by failure to disclose what has still not been disclosed and also by delays in disclosing and producing that which has been provided after the due date. The liquidators have been required to devote time and cost to identifying the gaps in disclosure and pressing the respondents to make them good. They have no doubt been hampered in their ability to pursue enquiries with third parties and in preparing their own case.
  12. I reject Mr Komaleswaran’s attempt to excuse his failures on the basis of lack of understanding of his obligations. He was advised at the time of the original disclosure order and when the unless order was made, both of which were by consent, albeit by a different firm than that now acting. He could have been in no doubt from the liquidators’ correspondence what documents they were seeking, but instead of providing them he seems to have devoted his efforts to evading doing so.
  13. I conclude then that the breaches were serious and significant, and there is no good reason for them.
  14. As for the overall assessment of the circumstances and justice of the case, I accept that the sanction is severe. It is relevant, though not determinative, that it was imposed by consent, as was the disclosure order that the respondents failed to comply with. I do not accept the submission that the disclosure could not bear on the issue whether Mr Komaleswaran was a de facto or shadow director of MKG- it might well do so if for instance the contemporary documents showed intermingling of funds between Mr Komaleswaran and MKG, or that he took part in transactions between MKG and the other companies.
  15. I can only assume that Mr Komaleswaran is likely to have taken the course he has with a view to defeating or frustrating the claims against him and his companies. Those claims are made in circumstances which, on the material available to the liquidators, call for an explanation and in the absence of such an explanation plainly suggest that there may have been significant impropriety in dealing with MKG’s affairs, with good reason to believe Mr Komaleswaran may have been principally responsible.
  16. This is not a case in which the respondents have a defence that appears inherently strong on the material presently before the court. It faces obvious difficulties of credibility which have been exacerbated by the documents disclosed after the hearing (though I repeat I do not rule out the possible that it could be made good at trial). Depriving the respondents of the opportunity to maintain that defence to trial may represent some risk of an outcome they could have avoided, but the relative unlikelihood of the defence succeeding lessens the risk of injustice.
  17. I bear in mind that even if the overall case as to the circumstances by which the business and assets disappeared did not succeed, there might be arguments as to individual aspects of the claim or as to quantum that might have been pursued at trial but, because of the way the sanctions take effect, could not now be pursued. But the only such argument that was raised before me was as to Mr Komaleswaran’s position as a shadow director of MKG, on which his position seems to me to be particularly weak. I do not regard any loss of ability to pursue that as raising a substantial risk of injustice.
  18. Insofar as relief is sought by the liquidators in relation to particular payments made, no case has been put that if the general case against the respondents is made out, particular payments are nevertheless not recoverable. No doubt it would have been open at trial for the respondents to present arguments as to the state of account between MKG and the respondents, and for instance to argue that sums were due to the respondents for other transactions that might be set off, but it seems to me that the disclosure sought would have been highly relevant to any such cross claims, and if the respondents have prejudiced their position by failing to provide that disclosure, that is not a cause of injustice.
  19. Part of the relief sought by the liquidators is by way of account in any event, and the sanction does not prevent the respondents participating in the taking of any account required.
  20. In those circumstances in my judgment, it is not unjust to maintain the sanction that the respondents agreed to, the effect of which is that Mr Komaleswaran and his companies will be found liable for the claims made as they are pleaded. Severe as it is, that sanction is not disproportionate.
  21. Accordingly, I refuse relief from sanctions. The applicants are entitled to judgment in accordance with the terms of the unless order. I will hear submissions as to the form of order at the handing down of this judgment.