RELIEF FROM SANCTIONS WOULD HAVE BEEN GRANTED (IF IT WAS NECESSARY) WHERE BREACH OF A PEREMPTORY ORDER WAS NOT SERIOUS OR SIGNIFICANT

In  Kazakhstan Kagazy Plc & Ors v Zhunus & Ors [2020] EWHC 2431 (Comm) Mr Justice Henshaw held that a defendant had not breached a peremptory order and relief from sanctions was not required.  However he indicated that if there had been a breach then relief from sanctions would have been granted.

THE CASE

An unless order was made in relation to disclosure of assets.  The claimants alleged that the respondents had failed to comply with the order and sought judgment on the grounds of breach of the order. The respondents argued that they had complied but sought relief from sanctions in the alternative.

THE JUDGMENT ON THE RELIEF FROM SANCTIONS ISSUE

The judge found that the respondents had complied. However he indicated that he would have granted relief from sanctions in any event.

    1. In the light of the conclusions I reach above, the answer to the first stage of the Denton enquiry in this case is that relief from sanctions is not required because there was no non-compliance. In principle, the discussion ends there.
    2. In case I am wrong in that conclusion, I would find (again for the reasons set out above) that any non-compliance was limited to the points mentioned in § 104 above. None of those matters imperilled or imperils future hearing dates nor has otherwise disrupted the conduct of the litigation; and nor in my judgment was any of them serious or significant in the broader sense considered in Denton § 26. That paragraph of Denton is not specifically focussed on breaches of ‘unless’ orders, where the particular considerations indicated in §§ 49 and 50 apply. However, as the Court of Appeal pointed out in British Gas Trading, not every breach of an ‘unless’ order is serious or significant. Such non-compliance as, on one view, occurred was limited to a lack of clarity on two points which was fairly promptly remedied, and failure to exhibit a record that was in fact not available to exhibit. None of those matters in itself has any ongoing significance for the litigation. It is important to distinguish between the significance of the breaches themselves, on the one hand, and other aspects of the Respondents’ conduct which may be inadequate more serious ways. The focus at this stage is on the seriousness of the breaches themselves (see Denton § 27). These breaches – if (contrary to my primary conclusion) they were breaches at all – were not serious or significant.
    3. In these circumstances, it is unnecessary to consider the second and third Denton stages in any detail, if at all. As to the reasons for any breach, the Respondents make a number of submissions to the broad effect that:
i) Mr Georghiou is the director and sole natural person with control of the Respondents. He has a distinguished and unblemished record as a very senior Cypriot lawyer (and former Member of Parliament).
ii) Mr Georghiou does not speak English as his mother tongue, and is not an English lawyer familiar with English litigation. He is also substantially IT illiterate, having stated on the Respondents’ disclosure certificate that he does not personally use any computer or other such device, relying on others in this regard. He had no meaningful involvement in the obtaining of the ISS Image or the processes conducted upon it, effectively leaving everything to Mr Mavros.
iii) In this hard-fought litigation, there is very bad blood between the Claimants and Mr Georghiou, and the Claimants are said to have made a number of belligerent personal attacks on Mr Georghiou.
iv) These factors have contributed to imperfect decision-making and to unnecessarily straining relations.
v) There is a different cultural approach in Cyprus, which manifests itself most strikingly in the law and practice towards the preservation of the ISS Image. Mr Georghiou has admitted that he was mistaken as to his duty to preserve the ISS Image. However, it was an innocent mistake, and one which viewed from outside the UK can be seen as reasonable. Put simply – the ISS Image was seen as being “only” a copy of the data upon which the disclosure exercise was focused, with no inherent value.
vi) ISS is completely independent from the Respondents. Mr Mavros cannot be taken to be as available to the Respondents as Mr Georgiou.
vii) Mr Georghiou is clear that the Sources are pristine and untouched: if the disclosure exercise were repeated, exactly the same results should ensue.
viii) Once the potential for a finding of breaches was fully apprehended, the Respondents swiftly sought to remedy that risk. This is all in the context of Mr Georghiou’s serious heart-related illness.
ix) Each of Mr Georghiou and Mr Mavros was unduly (if understandably) upset by the definition “Destroyed Data” in the Order (which implied the destruction of the underlying data with all that that means for professional men in their positions). Similarly, each of Mr Georghiou and Mr Mavros considers that he has acted in accordance with Cypriot law and procedure and so has not fully appreciated the need for any more detailed explanation as to why the ISS Image as not retained (and the disclosure obligations under English law strictly complied with).
x) Mr Georghiou has been understandably concerned about the effect of any stress on his recovery from a heart attack.
xi) Any non-compliance has been contributed to by the lack of “bright lines” marking out what was required.
    1. The Claimants point out, on the other hand, that the Respondents’ evidence that Mr Mavros and Mr Georghiou did not fully understand what was required of them is inadequate as an explanation, and at odds with the evidence given by Mr Georghiou and his then legal representative, Mr Dominic Chambers QC, when the Respondents sought relief from sanctions for their previous breaches of ‘unless’ orders, similar excuses having then been given to the effect that Mr Georghiou was previously unfamiliar with English practice and procedure:
i) Mr Georghiou, in his sixth witness statement of 6 November 2019, said that: “now being more familiar with how the litigation process works in England, I will do everything I can to ensure that there are no repeats of the mistakes of the past“; and
ii) in evidence of the same date, Mr Chambers QC said: “I have ensured that the Respondents are fully aware of their obligations to the Claimants and to the Court so as to ensure that this litigation is conducted with maximum efficiency and cooperation in accordance with the overriding objective. I am now confident that, going forward, there will be no repeat of the type of events which led to the making of the ‘unless’ provisions of the 28 June order.
    1. The Claimants also point out that Mr Georghiou’s evidence about the impact of his heart condition has already been found by Andrew Baker J to be at best unreliable. The reality, they say, is that despite at all material times being fully advised on the implications of the English court’s orders, and despite the clear warnings given by Andrew Baker J in his Judgment of 10 July 2020, Mr Georghiou considered that he knew better.
    2. The question of ‘good reason’ clearly has to be assessed in the context of the nature of any breach. If there were any breach, in the respects listed in § 104 above, it was in two instances a lack of precision or detail and in the third instance an inability to exhibit a record that had not in fact been retained. Dealing with the third point first, on the basis (on which I consider I must proceed for present purposes) that the record was indeed not retained, that must be a good reason for not exhibiting it. As to the first two points, the factors identified in § 107(iii)-(vi) and (ix) might be regarded as having contributed to any such breach, though none of them could in my view be regarded as a good reason.
    3. More important, to my mind, is that any such breaches were neither serious nor significant in the first place. In those circumstances, it seems to me that it would be wrong then to proceed, at Denton stage 3, to refuse relief from sanctions for any such breaches on the basis that the Respondents’ overall conduct of this litigation to date, including the disclosure process, has been highly unsatisfactory to say the least.
    4. On the contrary, that approach would involve imposing (in this case) the most draconian sanction – final judgment against the Respondents in respect of properties said to be worth of the order of £38 million – by reason of breaches which were neither serious nor significant in themselves, and which cannot realistically be regarded as having imperilled the fairness of these proceedings.
    5. The Claimants in their skeleton argument make the overarching points that:

“100. … the Respondents’ conduct is now imperilling the fairness of these proceedings. They have destroyed, or allowed to be destroyed, important data in circumstances which remain opaque and which they refuse properly to explain. They are also refusing to allow a reputable independent IT expert to re-conduct their disclosure exercise, with the effect of (1) preventing the integrity and accuracy of their previous disclosure exercise being tested (as the Court has deemed necessary) and (2) preventing proper disclosure being given at all. And they continue to accuse the Claimants of serious wrongdoing without any basis and continue to contest the validity of this Court’s Orders.

101. The Respondents have shown no remorse and, regrettably, have shown that the Court can have no confidence that matters will ever improve. It is not fair for the Claimants to be required to continue to litigate these Charging Order Applications at considerable expense in circumstances where (1) the fairness of the proceedings has now been jeopardised and (2) it is overwhelmingly likely that granting the Respondents a yet further indulgence will merely result in further non-compliance, further cost and the use of further Court time in dealing with those.”

  1. Though I have considerable sympathy with the Claimants in a general sense, the above submissions in my view relate largely to matters other than the breaches (if any) of the ‘unless’ orders. The court is not currently being asked to impose a sanction in respect of any destruction of data by the Respondents, their conduct in relation to the Deloittes exercise, the adequacy of their disclosure, their accusations against the Claimants, or their approach to this court’s orders in general. Had there been serious and significant breaches of the ‘unless’ order, then those considerations would been relevant at Denton stage 3. However, in my judgment that is not the position.
  2. As a result, if and to the extent that relief from sanctions were required, it should in my view be granted.
  3. It follows that the Claimants’ application for judgment must be dismissed.