DENTON PRINCIPLES APPLY WHERE WITNESS EVIDENCE SERVED LATE

The judgment of HHJ Matthews (sitting as a High Court judge) in Wolf Rock (Cornwall) Ltd v Langhelle [2020] EWHC 2500 (Ch) considers the issue of whether the Denton principles apply when a witness statement is served late but there is no express sanction stated in the order for directions.   It was held that a party serving late requires permission of the court to rely on evidence served late. That permission application is considered on the basis of Denton principles.

THE CASE

The respondent to the appeal(Langelle) had applied to be substituted as a petitioner in a winding up application against Wolf Rock.   The petition did not proceed on the initial hearing but the District Judge gave directions for the service of evidence.   Service of evidence for Wolf Rock was later extended to the 16th August 2020.   Wolf Rock served evidence on the 15th August and two further witness statements on the 21st November 2019.  The District Judge refused to allow Wolf Rock to rely on the witness statements served in November.  The District Judge heard the evidence and made a winding up order.

THE APPEAL

Wolf Rock appealed against the winding up order. One of the issues that had to be considered on appeal was whether Wolf Rock required permission to rely on the witness statements served late. On appeal the HHJ Matthews considered the issues and held that permission was required.

THE JUDGMENT ON THIS ISSUE

First issue: was relief from sanctions required?

1. 1. As to the first of the issues that I identified above, neither counsel was able to locate any authorities on the construction of rule 7.16 of the 2016 Rules. The rule reads as follows:

“(1) If the company intends to oppose the petition, it must not later than five business days before the date fixed for the hearing—

(a) file with the court a witness statement in opposition; and

(b) deliver a copy of the witness statement to the petitioner or the petitioner’s solicitor.

(2) The witness statement must contain—

(a) identification details for the proceedings;

(b) a statement that the company intends to oppose the making of a winding-up order; and

(c) a statement of the grounds on which the company opposes the making of the order.”

1. 1. Rule 7.16 is in Chapter 3 of Part 7 of the Rules. Part 7 deals with winding-up by the court, and within that Chapter 3 deals with petitions for a winding-up order. It covers the procedure from presentation of the petition to the making of the order by the court. This includes a requirement to serve a copy of the petition on the company, and sometimes others (rule 7.9), a requirement to give notice of the petition by advertisement (rule 7.10), a requirement for a certificate of compliance with the rules relating to service and giving notice (rule 7.12), power to give permission to the petitioner to withdraw the petition (rule 7.13), a requirement that a creditor or contributory who intends to appear on the hearing of the petition give notice of intention to appear to the petitioner (rule 7.14), a requirement that the petitioner prepare for the court a list of the creditors and contributories who have given notice under that rule (rule 7.15), power for the court to substitute another creditor or contributory for the petitioner (rule 7.17), a requirement for the petitioner to give notice of any order adjourning the hearing of the petition to various persons (rule 7.19), and various provisions relating to the order for winding up if made by the court (rules 7.20-7.22).

Arguments

1. 1. The appellant argued that rule 7.16 governed the ability generally of the appellants to adduce further evidence, and that, by serving the further evidence more than five business days before the hearing, that rule had been complied with. Accordingly, there was no need for any application for relief from sanctions, and the district judge’s decision to exclude the November evidence from consideration (on the grounds that such relief was necessary) was wrong in law. The appellant accepted that rule 7.16 could be overridden by express order of the court, or even an order which by necessary implication overrode that rule, but submitted that there was nothing of that sort here. To the extent (if at all) that orders of the court before 21 August 2019 had amounted to such (implied) overriding of rule 7.16, the appellant submitted that the order of District Judge Middleton on that date had put a different framework in place, and displaced any earlier directions.

   2. The respondent argued for a different view. She submitted that rule 7.16 applied only to cases coming before the court for the first time. At that stage, the court would need to know whether the petition was opposed by the company. If it was not, then the order could be made there and then. But if it was opposed the court would give directions for further hearing, depending on what was opposed and on what grounds. In a case such as the present, where the petition was opposed from the beginning, and a witness statement had been filed under rule 7.16 (on 18 June 2019), and then the court had given detailed directions for further evidence in the case (by its order of 25 June 2019), the effect of rule 7.16 was in effect spent, and it was open to the court thereafter to case manage the petition and decide that no further evidence should be admitted except by permission of the court. In effect, the court intended to, and did by its orders of 25 June and 23 July 2020, control the evidence, and impliedly prohibit the admission of further evidence except pursuant to those orders, or any subsequent order of the court. The effect of this was that, when the appellant filed further evidence in opposition to the petition in November 2019, it did so without the permission of the court, and in breach of the order of 25 June 2020 as amended by the order of 23 July 2020.

Authorities

1. 1. No specific sanction is prescribed for breach of the orders. However, in recent years case law has built up the concept of the implied sanction, to which the Denton/Mitchell principles are equally applicable: see the decisions of the Court of Appeal in Sayers v Clarke Walker [2002] 1 WLR 3095, CA, Robert v Momentum Services Ltd [2003] EWCA Civ 299, Baho v Meerza [2014] EWCA Civ 669 and Altomart Ltd v Salford Estates (No 2) Ltd  [2015] 1 WLR 1825. In the last of these cases, the respondent to an existing appeal sought to file a respondent’s notice out of time. Moore-Bick LJ (with whom Ryder LJ and David Richards J agreed) first of all pointed out the limited scope of the relief from sanctions provisions of the CPR (rules 3.8 and 3.9):

“10. In my view it is clear from the language of rule 3.8 that it is concerned with a sanction imposed by the very rule, practice direction or order of which the applicant is in breach, hence the use of the words ‘imposed by the rule, practice direction or court order.’ In such cases the consequences of default are spelled out; a classic example is an ‘unless’ order. Rule 3.9 does not repeat the words ‘by the rule, practice direction or court order’, but Rule 3.8 provides the context in which rule 3.9 has to be read and in my view it is also directed to sanctions in the sense of consequences imposed by the rule, practice direction or order of which the applicant is in breach. Most rules, practice directions and orders, however, do not provide specific sanctions for their breach, leaving it to the court to decide what, if any, consequences should follow. In my view rule 3.9 does not, therefore, apply to such cases and an application for an extension of time is not one that falls within the scope of rule 3.9, either expressly or by analogy. Such applications are governed by rule 3.2(1)(a).”

1. 1. Secondly, Moore-Bick LJ went on to point out that in the seminal relief from sanctions case of Mitchell v News Group Newspapers Ltd [2014] 1 WLR 795, CA, [12],

“the sanction from which relief was sought had not been prescribed as a consequence of default by any rule practice direction or previous order of the court. It was a sanction imposed by the court in the exercise of its discretion for a failure to comply with a rule that itself prescribed no sanction for default. To that extent it might be thought that the case did not fall within the natural ambit of rules 3.8 and 3.9. [ … ] Nonetheless, the application proceeded under rule 3.9 and laid down principles which are intended to govern applications under that rule. The question remains, however, whether they were intended to govern applications, such as the present, for extensions of time where no sanction is prescribed for the default.

1. 1. Moore-Bick LJ continued:

“13. The consequences of failing to file a respondent’s notice within the prescribed time are not spelled out in the rules, so on the face of it there is no sanction within the meaning of that expression in rules 3.8 and 3.9 from which the respondent needs relief. However, in a number of cases dating back more than a decade the courts have recognised the existence of implied sanctions capable of engaging the approach contained in rule 3.9 and therefore now the Mitchell principles. … “

1. 1. Moore-Bick LJ referred in particular to the decision of the Court of Appeal in Sayers v Clarke Walker [2002] 1 WLR 3095, in which the court considered the approach to be adopted to applications for permission to appeal out of time. He quoted the statement of Brooke LJ (with whom Kay LJ and Sir Christopher Staughton agreed) in that case (at [21]) that

“In my judgment, it is equally appropriate to have regard to the check-list in CPR 3.9 when a court is considering an application for an extension of time for appealing in a case of any complexity. The reason for this is that the applicant has not complied with CPR 52.4(2), and if the court is unwilling to grant him relief from his failure to comply through the extension of time he is seeking, the consequence will be that the order of the lower court will stand and he cannot appeal it. Even though this may not be a sanction expressly ‘imposed’ by the rule, the consequence will be exactly the same as if it had been, and it would be far better for courts to follow the check-list contained in CPR 3.9 on this occasion, too, than for judges to make their own check-lists for cases where sanctions are implied and not expressly imposed.”

1. 1. So Brooke LJ was not saying that the intention of the rule-maker was that there should be a sanction implied in such a case. Instead he was saying that for good policy reasons the law should treat an application for extension of time as if it were an application for relief from sanctions. Moore-Bick LJ returned to this point when he said:

“16. The reason given by Brooke LJ in Sayers v Clarke Walker for treating an application for permission to appeal out of time as analogous to an application for relief from sanctions was that without such an extension the appeal could not proceed. Mr. Knox submitted that an application for permission to file a respondent’s notice out of time is different because the proceedings will continue in any event. That is certainly true, but in my view that is not a significant ground of distinction. The purpose of the respondent’s notice is to enable Altomart to rely at the hearing of the appeal on grounds for upholding the judgment that were not before the court below. If an extension of time is not granted it will be unable to do so. To that extent that area of dispute will not come before the court. In my view for a respondent to be prevented from pursuing the merits of a case it wishes to pursue on the appeal is no more or less of an implied sanction than it is for an appellant to be prevented from pursuing its case on appeal. In my view, therefore, the Mitchell principles apply with equal force to an application for an extension of time in which to file a respondent’s notice.”

1. 1. Accordingly, as a result of this line of authorities, I understand the position to be that, although there are cases where the rule or order does not expressly state a sanction and the court by a process of interpretation nevertheless construes the rule or order as impliedly containing one, there are also cases where there is no intention to create a sanction but the law for policy reasons treats the case as one analogous to an application for relief from sanctions, and applies the Denton/Mitchell principles.

   2. As against that, the appellant referred me to the decision of Chief Master Marsh in Djurberg v Richmond London Borough Council [2019] EWHC 3342 (Ch). In that case the first defendant had intimated an intention to apply to strike out the claim. The Chief Master directed that

“If the [First] Defendant wishes to apply to strike out the claim such application must be issued and served with any further evidence relied on by 4pm on 31 May 2019. It shall be listed for hearing on 3 September 2019 at the same time as the Claimant’s application.”

It will immediately be noted that this is a different case from the present. It is not about a timetable for evidence for an existing application. It is about whether an application to the court should be made at all. At the hearing on 3 September 2019, it became clear that the first defendant had filed a witness statement in support of the application, a draft order and a skeleton argument on 31 May 2019, but not an application notice. Moreover, none of the three documents filed had actually been served on the claimant. The hearing was adjourned, and the order specified that if the first defendant intended to apply for relief from sanctions that application had to be issued and served by 4pm on 17 September 2019. That application was apparently so issued and served, and was the subject of the present judgment.

1. 1. The Chief Master noted that the order of 7 May 2019 did not contain an express sanction for non-compliance. He discussed the concept of the implied sanction, and referred to a number of cases, including Sayers v Clarke Walker [2002] 1 WLR 3095, CA, and Altomart Ltd v Salford Estates (No 2) Ltd [2015] 1 WLR 1825 to which I have also referred. He also quoted from another, more recent decision of Martin Spencer J, in Mark v Universal Coatings & Services Ltd [2019] 1 WLR 2376. That was a case of a claimant’s failure to serve a medical report or schedule of loss within the time periods specified in the relevant practice direction. The judge said:

“54. In his submissions, Mr Limb referred to the wording of paragraph 4 of the Practice Direction and the use of the word ‘must’ indicating that it is a mandatory provision. Whilst this is true, I would observe that this is a characteristic of the drafting of the CPR and the word ‘must’ is used liberally. However, to imply the need to apply for relief from sanctions in all cases where a rule or practice direction contains such wording would, as Mr Walker submitted, result in the courts being inundated with applications quite unnecessarily.”

The judge decided that no sanction was implied by the provisions of the practice direction specifying the time for service of the documents.

1. 1. Having referred to that, the Chief Master said this:

“32. I respectfully agree with that analysis. In my judgment, it would be wrong for the court to search out reasons for imposing sanctions that do not obviously arise out of the terms of the CPR or an order made by the court. As to orders made the court, it is always open to the court to impose a sanction and it should be clear on the face of the order so that the parties know of the consequences of a failure to comply with it.

33. [Counsel for the first defendant] submitted that there are three categories of case so far as sanctions are concerned.

(1) Cases where (a) there is an express sanction that is imposed as a consequence of failure to comply with a rule (such as the deadline for filing a costs budget (CPR 3.14) or serving a witness statement (CPR 32.10) or the effects of CPR 8.4(1) and 8.6(1)) or (b) orders that impose a time limit with an unless order.

(2) Cases where a sanction must be implied. This occurs where although the rule or order does not impose a sanction, the effect of the rule or order is to require a party to have to apply to the court for permission or take some other step to avoid a negative consequence. Examples are having to apply for permission to appeal out of time or to be permitted to participate in hearings where no respondent’s notice has been served.

(3) Cases where an order is expressed in mandatory terms such as “shall” or “must” but no consequences are directed in the rule or order for a failure to comply.

34. It seems to be that this is a helpful categorisation subject to two observations:

(1) With reference to the second category, loosely ‘implied sanctions’, in some cases it will be obvious that the court intended there to be a sanction for a failure to comply with the order and it is also obvious that what that unexpressed sanction should be. This is matter of the court construing the earlier order. But as I have observed already, since it is open to the court to impose an express sanction in an order, it will be rare of the court to be able to reach the threshold for implication. After all, if it is so obvious that the court intended there to be a sanction, why was it not expressed. But I distinguish here a failure to draw up the order to as to reflect the intention of the court as it was expressed at the hearing, from seeking to construe the order to establish the court’s unexpressed intention.

(2) As with any categorisation, the boundaries between the categories may be indistinct.

35. I am satisfied that the order made on 7 May 2019 did not contain a sanction. I would add that even if my analysis of the CPR is wrong, I would have been willing to grant relief. The failure to serve the application and evidence by the deadline was serious because the idea behind the order was to put the claimant in a position in which he knew whether or not the application was to be made and if so on what terms. However, the explanation for the breach that is provided in the first defendant’s evidence goes a long way to explain the breach and when all the circumstances of the case are considered, the fact that the claimant wishes to resurrect this is very weak case after a lengthy period of inaction militates strongly in favour in granting relief. The court is required to consider the merits of the amended claim when dealing with the application for permission to amend the particulars of claim. It follows that even when the considerations set out in CPR 3.9(1)(a) and (b) are taken into account, it would be right for the court to deal with the first defendant’s application.”

The Chief Master then went on to deal with the first defendant’s application, and struck out the claim.

Discussion

1. 1. I too respectfully agree with the view of Martin Spencer J that it would be wrong “to imply the need to apply for relief from sanctions in all cases where a rule or practice direction contains” the word ‘must’. It is a question of construction and, as is well known, in questions of construction context is everything. Subject to one important caveat, I also agree with the Chief Master’s view that counsel’s tripartite categorisation of sanctions cases was “a helpful categorisation”. The caveat is that, for the reasons already given I consider that counsel’s second category of cases where there is an implied sanction, in fact is divided into two: (1) those where the intention of the rule-maker or judge is to impose a sanction which has not been expressed, and (2) those where the rule-maker or judge had no intention to impose a sanction, but for policy reasons the case is treated as one of relief from sanctions.

   2. All that said, I respectfully doubt whether some of the further comments which the Chief Master made are completely compatible with the approach taken, and the comments made, in the decisions of the Court of Appeal in Altomart, to which I referred earlier. I am thinking in particular of his comment in paragraph 34(1) that

“since it is open to the court to impose an express sanction in an order, it will be rare of the court to be able to reach the threshold for implication. After all, if it is so obvious that the court intended there to be a sanction, why was it not expressed.”

1. 1. That may be true of the case of implied intention in fact to impose a sanction (though in this case I need not and therefore do not so decide), but it is in my judgment irrelevant in the case where for policy reasons the case is treated as one of relief from sanctions. The question in the present case is whether, when the court has set a timetable for the filing and service of evidence leading to a hearing, and a party fails to abide by it, an application for relief from sanctions under CPR rule 3.9 is necessary. The respondent’s argument here is not that the court intended a sanction, but that the setting of a timetable for evidence for a hearing requires that breaches of the timetable be treated analogously to cases where sanctions are expressly imposed.

   2. In my judgment, there is force in the submission by the respondent that rule 7.16 is really concerned with preparation for the first hearing of the petition. First of all, the rules in that chapter from rule 7.10 to rule 7.19 deal with what must be done to bring the existence of the petition to the notice of the company and to others who may be affected, with a view to their attending the hearing of the petition or even being substituted for the petitioner, as well as with ascertaining the position of the company (rule 7.16 itself). It is obvious that, in deciding how to deal with the future conduct of the petition, the court needs to know the respective positions of the petitioner, other creditors and contributories, and the company itself. In addition, the terms of rule 7.16 itself are concerned with informing the court of the company’s opposition to the petition and the grounds of that opposition. Those are the very matters which must be contained in “the witness statement” (and I note the use of both the singular form and the definite article) that the rule requires to be made, filed and served. In the present case, that function was performed, and the provisions of rule 7.16 satisfied, by the witness statement of Mr Jansen of 18 June 2019.

   3. Once that rule is indeed satisfied, it is hard to see that the rule should have any role to play thereafter. A witness statement filed and served under rule 7.16 must give the statutory particulars required in rule 7.16(2). A subsequent witness statement which did not contain those statutory particulars, but which otherwise contained evidence relevant to the issues arising in the petition, would not be admissible in the proceedings by virtue of rule 7.16. And it would make no legislative sense to say that a subsequent witness statement which was otherwise inadmissible for non-compliance with rule 7.16 should become admissible merely because it (again) contains those statutory particulars in addition to whatever other relevant evidence it may contain.

   4. A further point is that Chapter 3 of Part 7 does not contain anything like a code of procedure for the preparation and conduct of hearings of petitions to wind up companies. Indeed, rule 7.16 is the only provision in that chapter dealing with witness statements at all. That chapter says nothing about evidence by anyone else (although the statements of fact contained in the petition itself will be verified by a statement of truth: see rule 7.6). On the other hand, rule 12.1(1) of the 2016 Rules, which was referred to at the hearing, provides that

“The provisions of the CPR (including any related Practice Directions) apply for the purposes of proceedings under parts 1 to 11 of the Act with any necessary modifications, except so far as disapplied by or inconsistent with these Rules”

1. 1. So it is clear that, since Chapter 3 does not deal with the preparation and provision of evidence for the hearing of winding up petitions, the relevant provisions of the CPR apply instead, except so far as inconsistent with the Rules. Those provisions include CPR rule 32.1, which so far as material provides:

“(1) The court may control the evidence by giving directions as to –

(a) the issues on which it requires evidence;

(b) the nature of the evidence which it requires to decide those issues; and

(c) the way in which the evidence is to be placed before the court.

(2) The court may use its power under this rule to exclude evidence that would otherwise be admissible.”

1. 1. In my judgment, in giving directions as to evidence in the orders of 25 June 2019 and 23 July 2019, the district judge was exercising this power, and requiring that, in order for evidence to be admissible for the purposes of the hearing of the petition, it had to be filed and served in accordance with a prescribed timetable. By the order of 25 June 2019, the appellant had to file and serve any further witness statement by 24 July 2019. Because of the intervening application to attach a penal notice to the disclosure order, the district judge on 23 July 2019 decided to extend that time to 16 August 2019. Further evidence was indeed filed and served on behalf of the appellant on 15 August 2019. That was in accordance with the timetable. But the further evidence filed and served on behalf of the appellant in November 2019 was not in accordance with the timetable.

Did the order of 21 August 2019 change matters?

1. The appellant submits however that the timetable was in effect set aside by the order of District Judge Middleton on 21 August 2019, by “putting a different framework in place”. This framework included provision for oral evidence and cross-examination, and a significant extension in the hearing time allocated to the matter. I do not accept this submission. On 21 August 2019 the district judge took stock of the position as it then was, with the evidence that had been filed on both sides, and the issues raised by that evidence. The judge was concerned that the issues raised by the evidence filed and served could not be resolved without cross-examination, and that accordingly a longer time would be necessary. The district judge was not, in my judgment, “putting a different framework in place”. Instead the judge was simply accommodating the further material that had been put forward in accordance with the court’s directions, and managing the case accordingly. In my judgment the timetable envisaged by the earlier orders was maintained. Indeed, it was because the timetable was maintained that the order of 21 August 2019 needed to be made.

2. It is impossible to believe that the court in its case management orders of 25 June 2019 and 23 July 2019 that evidence should be filed and served by certain dates was implying that it was content that evidence that was not filed and served in accordance with those directions should nevertheless be admitted at the hearing without further ado. On the contrary, that would set at naught the whole point of the case management orders. The obvious inference is that such evidence would not be admitted at the hearing of the petition without the permission of the court. At the same time, no specific sanction was laid down, except in the philosophical sense that, if permission were not obtained the evidence could not be admitted. This is directly comparable to the example of an application to file an appellant’s respondent’s notice out of time: no appellant’s notice, no appeal; no respondent’s notice, no possible extra support for the decision under appeal. Accordingly, whilst I would not categorise the putting forward a further evidence in November as a breach of the earlier orders (because the appellant in the present case was under no obligation to file any evidence at all), the authorities to which I earlier referred make clear that, for policy reasons, the test for giving permission for evidence not filed and served in accordance with the court timetable was to be the same test is that for relief from sanctions under CPR rule 3.9. In my judgment, therefore, the district judge was not wrong in law to consider the question from the perspective of relief from sanctions in accordance with the Denton/Mitchell principles.