THIS WAS NOT AN APPROPRIATE CASE TO ADD A PENAL NOTICE TO AN ORDER: COURT WILL DETERMINE THE SUBSTANTIVE DISPUTE INSTEAD

In Wintermute Trading Ltd v Terraform Labs Pte Ltd [2024] EWHC 141 (KB) Mr Justice Lavender considered whether it was appropriate, on the facts of this case, to add a penal notice to an order for disclosure. He held that it was not and that the appropriate course was for the court to determine the question of whether full disclosure had, in fact, been given.

” it is a striking feature of this case that, if the respondent had asked the Senior Master on 11 January 2024, “What have you just ordered me to do by 4 pm tomorrow?” the Senior Master would have had to reply, “I don’t know. Possibly nothing. Possibly to produce a document or documents, but I don’t know which document or documents, because that remains to be determined”

THE CASE

The defendant obtained an order for disclosure against the defendant.  The order was made under the Evidence (Proceedings in other Jurisdictions) Act 1975. That order required affidavits to be served with the list, which verified the list.  The order made did not contain a penal notice.

The defendant produced a list, along with an affidavit.

The claimant contended that the list was incomplete and that the defendant had not produced all the documents.

The claimant sent an email to the court asking for a second order to be made which included a penal notice.

THE ORDER THAT WAS MADE

1. 1. The second order was in the terms of the draft provided by Rahman Ravelli. The recitals to the second order included the following:

“AND UPON there being a dispute between the parties as to whether or not the First Respondent has complied with the 7 December Order”

1. 1. The only operative paragraph of the second order provided as follows:

“If and to the extent that the First Respondent has not already complied with the 7 December Order, it shall do so by 4pm on Friday 12 January 2024.”

1. 1. Although the second order was made without a hearing, it did not contain any reasons. Moreover, the second order was made by the Senior Master without sight of Mishcon de Reya’s letter of 10 January 2024. That appears from the fact that a court officer sent an email to Mishcon de Reya at 15.12 on 11 January 2024 saying that the letter had been referred to the Senior Master for directions.

1. 1. Then at 15.30 on 11 January 2024 the court sent an email to the parties which referred to the following “directions” by the Senior Master:

“They are entitled to a penal notice the order remains the same. Refer them to para 16.30 to 16.35 of the Chancery Guide the same applies in KB.”

THE DEFENDANT’S APPLICATION TO SET ASIDE THE ORDER

The defendant applied to set aside the order/appeal.  The judge was hearing that application.

THE DECISION TO SET ASIDE THE ORDER WITH THE PENAL NOTICE

1. 1. It is helpful to dispose of some issues at the outset:

(1) Each party was critical of the other. Mr Anderson accused the applicant of being oppressive in threatening committal applications and in the manner in which it did so. As I have already noted, the applicant accused the respondent of deliberately failing to comply with the first order. I attach no weight to these points:

(a) Both parties are commercial enterprises represented by City solicitors who, as can be seen from the correspondence, are able to give as good as they get.

(b) It is a fact that, although the sanctions for contempt can be draconian, contempt proceedings are the only means available to a litigant of encouraging compliance with a court order or seeking to penalise non-compliance.

(c) I cannot assume that the respondent has failed to comply with the first order, let alone that it has done so deliberately. Those are matters to be resolved hereafter.

(2) While I accept that the first order was a final order, I do not accept that that fact meant that the first order could not be amended by adding a penal notice. Such an amendment would merely have given a warning to the respondent. It would not have interfered with the decisions made on any disputed issues when the first order was made. In addition, Mr Anderson accepted that the first order could be amended by extending the time for compliance with the first order.

(3) I do not accept the argument that, because the 1975 Act does not permit orders for disclosure, it would be impermissible or inappropriate for the applicant to apply for an order that the respondent produces documents which the applicant contends, but the respondent denies, were required to be produced by the first order. On the contrary, Mr Byam-Cook accepted that it would be necessary for the court to resolve the dispute between the parties as to what the first order required the respondent to produce.

(4) Nor do I find it helpful to have regard to the fact that, in proceedings under the 1975 Act, the court could not re-word, amend or vary the formulation in the letter of request of the documents sought to be produced. There is no suggestion that the court should re-word, amend or vary Appendix A to the first order, whose provisions, as I have said, mirror the terms of the letter of request. However, it is a necessary part of the enforcement of the first order for the court to decide what the first order meant. That is common ground between the parties.

1. 1. In my judgment, the striking feature of this case is that there is a dispute between the parties as to whether the respondent has complied with the first order and no progress can be made in this case until that dispute has been resolved. Seen against that background, the second order achieves little, if anything. The prospect that it would prompt the respondent to change its position and produce more documents was slight and has not materialised.

1. 1. There was a disagreement between the parties as to whether it is common or rare to include a penal notice in an order made under the 1975 Act, but I do not have any evidence with which to decide that issue. I do not agree with the Senior Master that the applicant was entitled to a penal notice, since the court has a discretion whether or not to include a penal notice in an order. The passage from the out-of-date version of the Chancery Guide to which the Senior Master referred included, in paragraph 16.32, the following statement:

“it is not necessary to obtain the consent of the court before a penal notice is endorsed on an order before service”

1. 1. This statement, which is inconsistent with the decision in Re Taray Brokering Ltd, has been removed from the Chancery Guide, no doubt because of that decision. In any event, it concerned the situation where a litigant endorses an order with a penal notice without the approval of the court, rather than the question of how the court should exercise its discretion to include, or not include, a penal notice in an order.

1. 1. Nevertheless, I see no reason in principle why the first order could not have included a penal notice, if the applicant had sought one on 7 December 2023, or could not have been varied so as to include a penal notice, if the applicant had applied for such a variation shortly after the first order was made. By 9 January 2024, however, there had been what in my judgment were three significant developments:

(1) The time for complying with the first order had passed.

(2) The respondent had produced documents in response to the first order and contended that it had complied fully with the first order.

(3) A dispute had arisen between the parties as to whether the respondent had complied fully with the first order.

1. 1. It is the combination of these three factors which makes it appropriate to question whether the second order was the appropriate order to make in this case. In particular, the mere fact that the time for complying with the first order had passed would not, by itself, have made it inappropriate to vary the first order by extending the time for compliance and inserting a penal notice if, for instance, there had been no compliance with the first order.

1. 1. It may also be the combination of these three factors which prompted Jay J to say as follows in the hearing on 12 January 2024:

“But here where there is an obvious dispute in a very complex area, whether or not there has been compliance, then to use the penal notice as a device for compelling compliance even though the order itself does not specify whether or not there has been compliance just does not seem to me to be very fair.”

1. 1. The applicant says that it was the respondent, through Mishcon de Reya, who first took a point about the absence of a penal notice in the first order and that it was appropriate for the applicant to take action to address that point. There is room for debate whether Re Taray Brokering Ltd was correctly decided: see Steven Gee KC’s article, Penal notices and contempt of court: Re Taray Brokering Ltd [2022] EWHC 2958 (Ch) C.J.Q. 2023, 4292), 111-119. However, the applicant was entitled to proceed on the basis that it was correctly decided and that the applicant could not add a penal notice to the first order of its own motion.

1. 1. Having said that:

(1) The purpose of a penal notice is to show that a party who is ordered to do, or not to do, something knew the potential consequences of disobeying the court’s order before he disobeyed it.

(2) It follows that, on a committal application, the court can dispense with the requirement for a penal notice if the contemnor already knew those consequences: see Serious Organised Crime Agency v Hymans [2011] EWHC 3599 (QB); and Business Mortgage Finance 4 Plc v Hussain [2022] EWHC 449 (Ch); [2022] 4 All ER 170.

(3) Consequently, it will be open to the applicant to contend on any future committal application that the respondent already knew the potential consequences of disobeying the first order when the first order was made. I say nothing about the merits of such a contention in respect of the period before 9 January 2024.

(4) Moreover, it was open to the applicant to achieve the substantive effect of a penal notice without a court order. As was said in Re Taray Brokering Ltd (at paragraph 22):

“… even where the order does not contain a penal notice, it is open to the party seeking to enforce it to point out to the party who is disobeying it that their breach of the order may have penal consequences.”

(5) Further, if, as the applicant contends, there has been a deliberate breach of the first order, then it would be open to the applicant to bring a committal application against Mr Gaevoy and to allege that he had made false statements in the affidavits sworn in response to paragraph 3 of the first order. A penal notice is not required in respect of such an application.

(6) Finally, as I said during the hearing, as a result of events since 9 January 2024, it is difficult to envisage that the respondent could say that it is now unaware of the potential consequences of disobeying a court order.

1. 1. The real difficulty with the second order is that, given the three factors to which I have referred, the second order required the respondent, on pain of being found to be in contempt of court, to do something by the end of the following day, but did not tell the respondent what that something was, and did so in circumstances where: (a) that something may be nothing; and (b) what, if anything, that something was remained to be decided. This much was effectively acknowledged by Rahman Ravelli in the paragraph which I have quoted from their letter of 9 January 2024. For these reasons, the second order offends against the principles stated on Gee on Commercial Injunctions which I have quoted. That is not necessarily determinative, but it is a significant factor on the facts of this case.

1. 1. Indeed, as I put to Mr Byam-Cook, it is a striking feature of this case that, if the respondent had asked the Senior Master on 11 January 2024, “What have you just ordered me to do by 4 pm tomorrow?” the Senior Master would have had to reply, “I don’t know. Possibly nothing. Possibly to produce a document or documents, but I don’t know which document or documents, because that remains to be determined.” Moreover, that would in substance have been the case whether the second order was in the form which it actually took or whether it had taken the form of a variation of the first order so as to extend time for compliance and insert a penal notice.

1. 1. In all the circumstances, I concluded that it was inappropriate to make the second order and that the appropriate order to make instead, and which I will make, is an order giving directions for the determination of the dispute between the parties as to what the first order required, whether the respondent has complied fully with the first order and, if not, what document or documents remain to be produced, or made available for inspection, in order to comply with the first order. The parties were not in a position to address me at the hearing on 22 January 2024 on the subject of what would be the appropriate directions to make and so I adjourned the hearing to 29 January 2024.