HIGH COURT GRANTS RELIEF FROM SANCTIONS FOLLOWING BREACH OF PEREMPTORY ORDER: IMPACT OF COVID CONSIDERED

In Finvest Holdings Sarl -v- Lovering [2021] 3WLUK 579 HHJ Pelling (sitting as a High Court Judge) granted a claimant relief from sanctions when the claimant failed to comply with a peremptory order.  There is a detailed discussion of the Denton criteria, together with consideration of the kind of evidence needed when a party is asserting that Covid has affected their ability to function.

“Where one is concerned with an allegation of Covid infection, a court will generally take a rather more benevolent attitude towards proof of whether or not the condition has been contracted or not, having regard to the likely difficulty of obtaining medical reports, at any rate at short notice and after the event. I am not suggesting for a moment that reports cannot be obtained, but it would be wrong to dismiss out of hand the suggestion that someone has contracted Covid when that is asserted in a witness statement supported by a statement of truth”

THE CASE

The court made an order that the claim be struck out unless further information was provided by the claimant.   The judge found that the order in question had not been complied with and the action was struck out. The claimant then made an application for relief from sanctions.  The judge allowed the application, giving the claimant extra time to comply with the original order.

THE JUDGMENT ON THE APPLICATION FOR RELIEF FROM SANCTIONS

The judge found that this was a serious breach, that some of the reasons put forward were not good reasons.  However, considering “all the circumstances of the case” he found that relief from sanctions should be granted by giving the claimant additional time to comply.

31.  This is an application, following on from the judgment I gave earlier today, for relief from the sanctions imposed by the order of 17 February. It is common ground that this is an application which has to be tested by reference to the tripartite test established by Denton v. TH White Limited [2014] EWCA Civ 906 ; [2014] 1 WLTR 3296 (“Denton”).

32.  The background circumstances leading to this application are set out in my earlier judgment; I do not intend to repeat them. The first question which arises under Denton is whether or not there has been a serious and significant breach. For the reasons identified in the judgment delivered earlier today, there has plainly been a significant and serious breach of the conditional order that I refused to set aside. The question which remains is whether, following the time for compliance with that order, further information has been provided which takes some of the sting out of that point. As to that, the submission which is made on behalf of the second claimant is that what is referred to in these proceedings as “Annex 4”, being a document exhibited to the fifth witness statement of the second claimant, provides some or all of the information which should have been provided at a much earlier stage.

33.  The point made on behalf of the defendant is that this is a document which simply extracts information from a private bank account and, thus, take matters no further, because it shows payments being made into the Citibank account, it refers to the payment for project costs, but it does not attempt to identify to whom the payments have been made.

34.  So far as that is concerned, para.41 of the fifth witness statement of the second claimant says of this bank account extract that it is of an account held at Citibank which ” acted as the paymaster account prior to the opening and operation of Oakvest’s account “. Oakvest’s account is referred to in the earlier schedules identified in my earlier judgment, and the ” paymaster account ” is a shorthand reference for an account from which the expenses of the project that forms the background to this dispute was met. The second claimant goes on, in the same paragraph, to say:

“Although I do not accept that further particularity is required to comply with the Directions Order, I now exhibit a schedule itemising my sums contributed to the Citibank Account showing my total contributions to the Citibank Account over the relevant period, and the sums then applied towards the Project’s costs, totalling … [in excess of £2 million].”

35.  The difficulty about that, as with everything else that has been supplied in purported compliance with Waksman J’s order, is that it does not set out, in plain and simple terms, precisely what information is being supplied in a single document which can be used sensibly for the conduct of the trial and for the conduct of the disclosure exercise. In particular, the point which is made on behalf of the defendant, a fair one in my judgment, is that payments out shown on Annex 4 is in respect of ” project costs ” without identifying to whom the money has been paid, which was, of course, one of the particular requirements of Waksman J’s order, which gives rise to the difficulties.

36.  I am satisfied therefore that the first requirement of the tripartite test in Denton is has been satisfied because there was a serious and significant breach of Waksman J’s orders and of the order of the 17th, for the reasons previously identified.

37.  The next issue that therefore arises concerns why the default occurred. The explanation for the default is contained in paras.54 and following of the second claimant’s fifth witness statement and breaks down, broadly, into two points, one concerning family difficulties and the other concerning his own physical health.

38.  At paras.54 through to 56, the second claimant outlines some real difficulties within his family life. It was submitted on behalf of the defendant that this was not significant, essentially for two reasons. First of all, the causative potency of the matters referred to had come to an end by the end of 2020 and, secondly and in any event, the second claimant has the support of both employees and professional advisors who would have, or could have provided the information that apparently could not be provided by the second claimant by reason of the matters to which the second claimant refers.

39.  I accept that the events which the second claimant refers to appear to have taken place in 2020. I do not, however doubt that the matters he refers to would have had a continuing effect on him, emotionally at the very least, and whilst this is not a particular strong factor to be taken into account in the events that followed, it is, nonetheless, a factor, and the events which are referred to in paras.55 and 56, which I do not need to refer to in this judgment in detail, are not challenged in these proceedings.

40.  The second issue which is identified occurred in January 2021, when the second claimant says he, himself, contracted Covid. The defendant submits however that the effect of the condition on the second claimant as described would have come to an end by the end of January at the latest and could not have affected the ability of the second claimant to comply with the orders thereafter, particularly where, as here, the second claimant has the support of employees and professional advisors. It is also said on behalf of the defendant that there is no objective evidence available which supports what is asserted.

41.  Where one is concerned with an allegation of Covid infection, a court will generally take a rather more benevolent attitude towards proof of whether or not the condition has been contracted or not, having regard to the likely difficulty of obtaining medical reports, at any rate at short notice and after the event. I am not suggesting for a moment that reports cannot be obtained, but it would be wrong to dismiss out of hand the suggestion that someone has contracted Covid when that is asserted in a witness statement supported by a statement of truth.

42.  As matters stand, therefore, I accept that the second claimant contracted Covid in January 2021, I accept that he was bedridden for a week thereafter and I accept that his ability to function at his pre-Covid condition was compromised for, as he puts it, a number of weeks after those events, and therefore that he was unable to work, initially at all, and then for a limited number of hours, and, in my judgment that is something which must be viewed against a background of the various family difficulties to which he refers earlier in this section of the fifth statement. As he puts it in para.58 of that witness statement, these things are cumulative. I accept what he says when he says that he was falling behind in regard to work-related matters as a result of the family events in 2020, and I accept that his onset of Covid would have affected things further, and badly.

43.  These are all, in my judgment, potentially good reasons for explaining a delay and on the evidence, they are explanations which I am prepared to accept. What I am not prepared to accept as a good reason, however, is the difficulty which appears to have arisen in relation to solicitor funding. The second claimant maintains, at para.62 of his fifth statement, that he is a man of substantial means and that any suggestion that he cannot afford to proceed with these claims is, as he puts it, ” ridiculous “. That said, at a critical period where there was a requirement to comply, first, with the order of Waksman J, and then the conditional order of 17 February, the solicitors on the record as acting for the second claimant were not engaging with the process, apparently as a result of funding difficulties. It is unlikely that these funding difficulties were minor, having regard to the significance of this litigation for the second claimant, the size of the sums at stake and the work that had to be done, particularly when viewed in the context of a conditional order. Nonetheless, the evidence which is available in relation to this issue is thin, and I am not able to reach any sensible conclusion as to what the detail behind the funding difficulties is. It is sufficient to say that that, of itself, is not a good reason for default but on the contrary is a bad reason, particularly if as the second claimant maintains, is a man of substantial means. I do not see how suffering from the aftermath of Covid would prevent authorising employees or professional advisors to arrange the transfer of the necessary funding for the conduct of the litigation. Thus, whilst I accept there is, in part a good reason for what happened, the funding issue is not, of itself, a good reason.

44.  In those circumstances, this application turns, in reality, upon the third stage identified in Denton , namely whether, in all the circumstances of the case, it would be appropriate to grant relief from sanction. In this context, it is important to note that there are two circumstances which are specifically mentioned in CPR r.3.9 , which have to be taken into account when considering whether, in all the circumstances, relief should be granted. They are: (a) the need for litigation to be conducted efficiently and at proportionate cost; and (b) the need to enforce compliance with rules, practice directions and court orders, and are referred to in Denton as factors (a) and (b). The key point to note about these factors is that they are important factors which are capable of determining applications for relief when all the other factors are of relatively minor significance. However, the question remains, in each and every case, whether, in all the circumstances, it is appropriate to grant relief.

45.  The points which were relied upon as justifying the conclusion that, in all the circumstances, it was inappropriate to grant relief from sanctions started with an assertion on behalf of the defendant that there had been a lack of promptness in and about the application for relief from sanction. The primary point made in relation to that being that the second claimant had not issued an application for relief from sanctions in the Part 23 application notice form. The only mention of relief from sanctions in any formal sense is that contained in para.54 and following of the fifth statement of the second claimant, and that, in those circumstances, it could not sensibly be said that there had been a prompt application for relief from sanction. In my judgment, that point is, in the circumstances of this case, not a fair basis for refusing relief from sanctions. By a letter of 2 March 2021, to the solicitors acting for the defendant it was indicated that an application for relief from sanction would, or would probably, be made, by the second claimant if and to the extent the application of 25 February, seeking to set aside the order of the 17th failed. It is perfectly true to say that there could have been included an alternative claim for relief from sanctions within the 25 February application, but one needs to adopt a degree of reality about all of this. The difference in time between 25 February, when an application for relief from sanction could have been made, and 2 March, when it was highlighted in correspondence, is not material or significant, or at any rate is not demonstrated to have been material or significant on the evidence, and, for that matter, the gap between 25 February and 5 March is likewise neither material or significant.

46.  So far as the writing of the letter rather than the issue of a formal application is concerned, I accept the explanation that is offered on behalf of the second claimant that the letter was written on legal advice, having regard to what is contained in Practice Direction 23A, which, at para.2.10, states:

“Where a date for a hearing has been fixed and a party wishes to make an application at that hearing but he does not have sufficient time to serve an application notice he should inform the other party and the court (if possible in writing) as soon as he can of the nature of the application and the reason for it. He should then make the application orally at the hearing.”

By the time 2 March came around, I accept that three clear days’ notice for a relief from sanctions application could not be given; the point, however, is that that does not explain why it was that it was not included within the application notice of 25 February. All of that said, as I have already indicated, that is neither material nor significant, or at any rate has not been evidenced to be such.

47.  The next point that was made as to why relief from sanctions ought not to be granted is that the fifth witness statement and Annex 4, viewed together, does not comply with the order made originally be Waksman J, and reiterated in the order of 17 February. That is correct for the reasons that I identified earlier in this judgment, and it is a factor which weighs against relief, although it must be noted that this is not a case of outright refusal to provide the information; rather information has been provided which is inadequate on its face, but only partially, and is provided in a form which is entirely unsatisfactory.

48.  The more telling point concerns the impact of any relief from sanction. This requires an evaluative approach since I am required to look at all the circumstances and to decide whether it is just in all the circumstances to grant relief from sanction. The point made on behalf of the defendant is that if I were to grant relief, then this would have a damaging impact upon the trial timetable generally and, in particular, on the ability to conduct an appropriately rigorous disclosure exercise. The point which is made is that disclosure is due to take place on 9 April next, and if a further fourteen days was given to the second claimant to comply with the order of Waksman J and/or the order of 17 February, then that would foreshorten the gap between the provision of the information and the disclosure exercise, thereby impacting on the ability of the parties and, in particular, the ability of the defendant, to conduct the disclosure exercise in an appropriate manner in order to ensure that the assertions that the second claimant makes have been appropriately tested.

49.  The answer to that from the second claimant was to say that disclosure could, itself, be postponed for a time equivalent to the period given to the second claimant to comply with the order, and thus there would be no material impact on the disclosure exercise that was not implicit within the order for directions made by Waksman J in any event. That led to a submission on behalf of the defendant that this would unduly concertina the time available between now and trial in order to prepare adequately. That takes no account of the fact that when the CCMC took place before Waksman J, Waksman J contemplated that a trial would take place sometime in October. In fact, the trial has been fixed for 13 December and, thus, broadly two months later than was contemplated at the time the various directions were given. In those circumstances, I am satisfied that if relief from sanctions was granted, it would be possible to extend the disclosure exercise without otherwise affecting the timetable and that there is more than adequate time within the timetable as a result of the trial being fixed on 13 December to enable the exercise to be dealt with appropriately.

50.  It is perfectly true to say that, when looking at an application for relief from sanctions, the question whether or not the applying party will be deprived of a valid claim is not a primary consideration but, nonetheless, what does have to be borne in mind is that if relief from sanctions is not granted, then there would be the possibility of an unfair advantage being conferred in this case on the defendant and an unfair disadvantage on the second claimant that is unnecessary in all the circumstances. This is a very substantial claim. This is not a case where a trial date is going to be endangered if relief from sanctions is granted. This is not a case where I can conclude that the second claimant is not engaging at all in the litigation process. This is not a case where I can safely conclude that the second claimant is only engaging in those parts of the litigation that he chooses to consider of benefit to him. True it is that, in the period when he could have provided further information that complied with the order of Waksman J, he was issuing applications for security for costs and his own application for further information to be provided by the defendant, but that has to be viewed in context. Until very recently, the hearing last Friday was due to be a security for costs application, and it is entirely appropriate or, at any rate, understandable that the second claimant would wish any application for security he, himself, wishes to bring by reference to the counterclaim against him to be heard at the same time as the claim by the defendant for security against him, and similar considerations apply to the request for further information.

51.  There remains, however, the two issues which are primary issues when resolving any application for relief from sanction, that is to say the need to provide for efficient and cost-effective conduct of litigation and the need to ensure compliance with rules, directions and orders.

52.  So far as the first of these considerations is concerned, I am satisfied that the relatively modest period of time that is sought, if attended by the imposition of clear conditions as to what will be the consequences of a failure to provide the necessary information by the time I propose to fix, will ensure that this litigation can be conducted as efficiently as the circumstances permit, particularly having regard to the fact that it will not affect other issues, materially, in the trial timetable and it will enable the trial to take place as fixed.

53.  So far as compliance with court orders are concerned, it is perfectly true to say that relief from sanctions might, in one sense, be said to countenance or encourage the breach of orders or failure to comply with orders that have been made. However, in my judgment, that can be catered for by any relief I grant being formulated in conditional order terms and by a suitably framed adverse costs order designed to bring home to the claimant that further failures to comply with court orders will not be tolerated, and I intend further to underline that by reserving all further case management in this case to myself, with the knowledge that I now have as to the way in which this case has been developing. The second claimant cannot expect to be granted any further generosity of time in relation to compliance with orders; on the contrary, he can only expect a strict requirement for compliance with all orders that are to be made in the future.