COURT GRANTS RELIEF FROM SANCTIONS: “IT IS UNFAIR… TO BE CRITICAL OF A PARTY FOR FAILING TO MEET A DEADLINE THAT WAS ALREADY UNLIKELY TO BE ANYWAY, WHATEVER STEPS HAD BEEN TAKEN TO COMPLY WITH IT”

For the second time today I am reporting on a successful application for relief from sanctions.  In  Melars Group Ltd v East-West Logistics LLP [2021] EWHC 874 (Ch) Mr Justice Adam Johnson granted an appellant relief from sanctions following a failure to comply with an order to provide security for costs.  What is of particular interest here is that judge’s observation that the delays in the Courts Fund Office meant that the original order made was probably unachievable in any event.  This was not know to the parties and the court when the order in question was made.

“it is unfair I think to be critical of a party for failing to meet a deadline which was always unlikely to be met anyway, whatever steps had been taken to comply with it.”

THE CASE

The appellant company was appealing a decision that it be wound up.  An order for security for costs was made by consent, with the appeal to be dismissed if the security was not paid by the 3rd December 2020.   The appellant paid the respondent’s costs but did not comply with an order to pay £30,000 by way of security for the respondent’s costs of the appeal.

The company had, in fact, paid the money to their solicitors but there was delay in paying the money into court due to a confusion as to the method of payment and the Courts Fund Office not responding to an email asking about the method of payment.  The solicitors confirmed that they held the money and it was paid into the CFO late.

THE APPLICATION FOR RELIEF FROM SANCTIONS

It was agreed that the Denton test applied.  The judge granted relief from sanctions.

THE JUDGMENT

Relevant Principles

1. 1. The parties were agreed on the principles to be applied, which were summarised in Denton v TH White [2014] 1 WLR 3926 by Lord Dyson MR and Vos LJ at [24] and are well known:

“A judge should address an application for relief from sanctions in three stages. The first stage is to identify and assess the seriousness and significance of the ‘failure to comply with any rule, practice direction or court order’ which engages rule 3.9(1). If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages. The second stage is to consider why the default occurred. The third stage is to evaluate ‘all the circumstances of the case, so as to enable [the court] to deal justly with the application including [the need for litigation to be conducted efficiently and at proportionate cost and to enforce compliance with rules, practice directions, and orders]’.”

Discussion & Conclusions

Stage 1

1. 1. Looking at the first stage of the Denton analysis, I have come to the view that the breach here was a serious and significant one.

1. 1. In expressing that conclusion, I have borne in mind in particular the direction given at paragraphs [26]-[27] of Denton, which seems to me to require an evaluation of the breach on its own terms, regardless of the attempts by the defaulting party to ensure compliance or the reasons for non-compliance. As it seems to me, such matters fall to be evaluated in the second part of the analysis.

1. 1. I reach the view that the breach here was serious and significant for the following reasons:

a. Roth J.’s order required payment into court to be effected by 4pm on 3 December 2020. Payment was not in fact made until 16 December, almost two weeks later. On any view that is a substantial delay. (I should say here that I do not accept the primary submission made by Mr Knight on behalf of EWL, that there was compliance with Roth J’s order only on 30 December 2020, when the CFO wrote with its final confirmation. The order required MGL “to pay £30,000 into court by way of security“, and in my judgment that direction was complied with on 16 December when the funds were transferred).

b. I am not persuaded that it makes any difference at this part of the analysis to say, as Mr Sheehan for MGL suggested, that from 7 December onwards EWL was effectively secured by means of the undertaking given by Preiskel LLP. It may have been, but (i) the undertaking was given only two working days after the deadline for compliance, and (ii) was not in fact what Roth J’s order demanded by way of compliance. It was offered by way of substitute compliance only.

c. Self-evidently, non-compliance had serious consequences. The pending appeal was automatically dismissed. That enabled EWL to communicate with the court and to vacate the hearing then scheduled for January 2021. Thus, there was just the sort of disruptive effect on the conduct of ongoing litigation referenced in Denton at [26]. Moreover, I do not think it is open to MGL to be critical of EWL for taking steps to vacate the hearing. The need to do so followed inevitably from the automatic dismissal of the appeal. Once that happened, absent further order from the court, there was no need for a hearing. Roth J’s order was in that sense intended to be self-executing. EWL did no more than seek to give effect to that practical reality. I do not think it should be criticised for doing so.

Stage 2

1. 1. I then come to the second stage of the Denton analysis. This requires me to examine the reasons for non-compliance. The position is as follows:

a. There was an initial period of 3 working days before MGL wrote with its request for an invoice on 23 November 2020.

b. The requested invoice was supplied by Preiskel & Co on 26 November, 3 working days later. It was only on the morning of 26 November that Mr Dougans wrote to his accounts department asking for the requested invoice to be issued.

c. Thereafter, MGL moved swiftly, and gave its instruction for the payment to be made on the following day, 27 November.

d. That was almost a week (and effectively 4 working days) prior to the deadline in Roth J’s order. However, the funds did not arrive in Preiskel & Co’s bank account until 2 December, 1 working day before the deadline. I have no direct evidence as to the reasons for that delay, but at least part of it seems to have been the result of the banking process taking longer than expected.

e. Thereafter, the delay between 2 December and 16 December was the product of resourcing difficulties and a backlog of work within the CFO. One can see that because Preiskel & Co. made contact with the CFO straightaway on 2 December and indeed took all steps they were able to pending provision by the CFO of the BACS details needed in order to be able to make payment. Had those details been provided, then no doubt payment would have been made immediately; but they were not provided until 14 December, with the result that payment was not actually made until 16 December, when Preiskel & Co.’s internal checks had been made.

1. 1. Standing back, there are therefore a number of overlapping reasons why the required payment was not made in time, but perhaps one main reason. The overlapping reasons include the time taken within the banking system for the funds to be transmitted to Preiskel & Co.’s client account (which accounts for the period between 27 November and 2 December), together with a slow response from the CFO in providing the necessary BACS information (which accounts for the period between 2 and 14 December 2020). But they also include the fact that the required invoice was not raised until 26 November 2020, a matter that was entirely within the control of MGL and its solicitors.

1. 1. It seems to me that main reason, however, is this: although no-one thought it at the time, the 14 day period for compliance with Roth J’s order was unreasonably short to begin with. The longest single period of delay in the overall process was the 12 days it took for the CFO to provide the required BACS payment details (i.e., the period between 2 and 14 December 2020). If, as seems to be the case, that was typical of the CFO’s turnaround time at that point, then compliance would only have been possible had those details been requested at around the time the order was originally made (i.e., 18 November 2020), or at any rate very shortly thereafter. I do not think it unreasonable of MGL not to have done so, because even allowing for the pandemic, it seems to me Preiskel & Co. were entitled to assume that such information would be made available reasonably promptly upon request. As it turns out, however, that was not the case, with the consequence that the order was likely incapable of being complied with more or less from the point in time that it was made.

Stage 3

1. 1. Looking at Stage 3 of the analysis, I have come to the conclusion that relief from sanction is justified, notwithstanding my earlier conclusion (at Stage 1) that the breach was a serious and significant one. That is for the following reasons.

1. 1. First, it seems to me that on balance satisfactory efforts were made to comply with Roth J’s order. Certain steps in the process were perhaps slower than they might have been, but there is no evidence of prevarication about complying. Efforts were ongoing to ensure compliance from 23 November onwards. The instruction was given for payment by SWIFT on 27 November, and in my view it was reasonable for those involved at the time to assume that that would allow the deadline to be met.

1. 1. Second, and relatedly, there is the point already made above in discussing Stage 2, i.e. that as matters have turned out, the agreed timetable was likely never a realistic one. That was no-one’s fault, in the sense that it reflected an understandable but, in the event, inaccurate assessment of how long the process of dealing with the CFO would take to deal with. In Mitchell v. News Group Newspapers Ltd [2013] EWCA Civ 1537, in describing what might amount to good reasons for non-compliance with a missed deadline, the Court of Appeal at para. [41] said that “[l]ater developments in the course of the litigation process are likely to be a good reason if they show that the period for compliance originally imposed was unreasonable, although the period seemed to be reasonable at the time and could not realistically have been the subject of an appeal.” The present may not be quite the situation the Court of Appeal in Mitchell had in mind, but even if not, it is closely analogous, and the sentiment expressed is applicable for the reasons I have already given: it is unfair I think to be critical of a party for failing to meet a deadline which was always unlikely to be met anyway, whatever steps had been taken to comply with it.

1. 1. Third, I agree that in this part of the analysis, even if not before, it is significant that the relevant funds were in Preiskel & Co.’s account before the deadline on 3 December 2020 (with instructions to pay them over to the CFO), and that by 7 December 2020, Preiskel & Co. had given an undertaking to hold the funds to the Court’s order and an application was made for relief. Thus, although certainly there was non-compliance with Roth J’s order, nonetheless it is clear that efforts were made to procure compliance, and when it became clear that compliance would not be achieved, steps were taken promptly to plug the resulting gap in a practical way and thus to provide security for EWL. All of that is consistent with a genuine desire to comply rather than (for example) a desire to try and avoid the effect of the order or prevarication about whether to comply or not. The delay in making the application for relief only on 7 December 2020 is excusable on the basis that the solicitors and counsel involved were, by 4 December, all suffering symptomatically from Covid-19.

1. 1. Fourth, there is the fact that the refusal of relief would have serious consequences for MGL and would effectively be terminal, at least as far as the position in this jurisdiction is concerned and possibly elsewhere (including in Switzerland in light of the steps taken by the English Liquidators in relation to the Swiss criminal complaint: see [8] above). That is a matter of significance in particular given the hesitancy expressed by the Deputy Judge in stating his finding on the key COMI issue and the fact that he himself gave permission to appeal (see above at [7]). Against that, Mr Knight made a number of points about the overall merits of MGL’s position. These included the fact that (as he put it) MGL remains hopelessly insolvent and will be liquidated either in this jurisdiction or another. He pointed also to examples of MGL’s conduct both before and after the hearing of the Petition (including the moving of its registered office to Malta shortly after the original BVI judgment, the fact that having obtained a stay of the Petition the promised challenge to the second BVI judgment was not pursued, and the fact that the former directors of MGL have failed to co-operate with the English Liquidators). I see the force of those points, but I am not persuaded that they tilt the balance in favour of denying relief. They all amount to saying, in effect, that MGL and those standing behind it are unmeritorious litigants whose practice is to obfuscate and cause trouble, and so the best thing to do is to use the opportunity presented by their default to cut off any prospect of them creating further problems by means of their intended appeal. With respect, it seems to me that is not the proper approach to take. For one thing, it ignores the fact that the appeal raises at least an arguable point. For another, it is not really practical for me on the present application to form such a broad assessment of where the respective merits of the parties lie. The present litigation is one part only of a web of claims the parties and their associates are involved in arising out of the same subject matter. As Mr Sheehan said during his submissions, even attempting a high level summary is a bold endeavour. It is not safe, I think, for me to inform my judgment on the present application by reference to an attempted assessment of which party overall is the more meritorious and deserving. I am concerned with the much narrower question whether, having regard to the facts immediately relevant to MGL’s appeal, it is right that that appeal should be allowed to continue, notwithstanding MGL’s failure to comply with the deadline in Roth J’s order. In my judgment, it should.

Conclusion

1. For all the reasons given above, I have determined that I will accede to MGL’s application for relief from sanction. I would ask counsel please to liaise with a view to drawing up an order to reflect the outcome of this Judgment.