Case Comment: Thevarajah v Riordan & Ors  UKSC 78
31 Thursday Mar 2016
On 16 December 2015, the Supreme Court upheld the Court of Appeal’s decision to allow Thevarajah’s appeal against a decision of first instance granting (the appellants in the UKSC) John Riordan and Eugene and Barrington Burke’s second application for relief from sanctions. Lord Neuberger gave the judgment, with which the other Justices agreed.
Thevarajah had entered into an agreement with the appellants to buy shares owned by the appellants in Prestige Property Developer UK Ltd. Having paid £1.572 million for the shares, Thevarajah sought specific performance of the agreement and associated relief in proceedings issued in March 2013. Thevarajah obtained a freezing order from Arnold J on 17 May 2013, at a hearing attended by the appellants and their legal representatives, where the appellants were also required to provide by 24 May 2013 specified information and documents relating to all their assets, including those held by Prestige Properties Ltd (the “Freezing Order”). Arnold J directed that the proceedings be heard during October 2013.
The appellants did not provide all of the disclosure required by the Freezing Order, and so Thevarajah issued an application for an “unless order” before Henderson J. On 21 June 2013, Henderson J made an unless order which required the appellants to disclose certain identified assets and provided that, should the appellants not comply by 1 July 2013, they would be barred from defending the claim (the “Unless Order”).
Again, the appellants gave limited additional disclosure but failed to comply fully with the Unless Order. Accordingly, on 9 August 2013, Hildyard J granted an application brought by Thevarajah for an order debarring the appellants from defending the claim (the “Debarring Order”) and dismissed an application brought by the appellants for: (a) a determination that they had complied with the Unless Order, or, if they had not (b) an order for relief from sanctions under CPR 3.9 (the “First Relief Application”).
The trial of the action was due to start on 3 October 2013. However, the appellants, with new instructing solicitors, issued a second application on 2 October 2013 for relief from sanctions (the “Second Relief Application”), supported by a lengthy affidavit in which the appellants maintained that they had provided full disclosure as required by the Freezing Order. The Second Relief Application, which came before Mr Andrew Sutcliffe QC, sitting as a Deputy High Court Judge, was successful and a new trial window was fixed for January 2014. In the hearing, the Deputy Judge did not have approved transcripts of the ex tempore judgments of Henderson H and Hildyard J, but quoted from informal notes or reported summaries of their respective judgments.
Thevarajah appealed against the Deputy Judge’s decision. The Court of Appeal allowed the challenge and restored the Debarring Order imposed by Hildyard J on the grounds that Hildyard J had already rejected the First Relief Application and the Deputy Judge could not properly have acceded to the Second Relief Application unless there had been a “material change of circumstances” since Hildyard J’s decision (which there had not been).
The Unless Order, coupled with the Debarring Order meant that unless the appellants were granted relief from sanctions under CPR 3.9, they were debarred from defending the claim. Hildyard J’s rejection of the First Relief Application followed the authoritative guidance on applications for relief from sanctions set out in Mitchell v News Group Newspapers Ltd  EWCA Civ 1537 and Denton v TH White Ltd  EWCA Civ 906.
The appellants contended that the Court of Appeal had erred by (i) holding that they needed to establish a material change in circumstances (and, as part of this contention, that CPR 3.1(7) applied to the Second Relief Application), or, in the alternative, (ii) holding that they had failed to establish such a material change.
On this first point, the Supreme Court held that CPR 3.1(7) did apply to the Second Relief Application. CPR 3.1(7) states that “A power of the court under these Rules to make an order includes a power to vary or revoke the order”. As a matter of ordinary language, the Deputy Judge was being asked to “vary or revoke” the Debarring Order made by Hildyard J. However, regardless, as a matter of ordinary principle, when a court has made an interlocutory order, it is not normally open to a party subsequently to ask for relief which effectively requires that order to be varied or rescinded, save if there has been a material change in circumstances since the order was made.
Consequently, as there was no question of the facts having been misstated by Hildyard J or of a manifest mistake in formulating the Debarring Order, and this was a “normal” case, the appellants had to establish a material change in circumstances since the hearing before Hildyard J.
The Supreme Court also disagreed with the second of the appellants’ arguments. Where a party is subject to a debarring order for failing to comply with an “unless” order to do something within a specified period and relief from sanctions is refused at a time when he is still in default, the mere fact that he then complies with the “unless” order (albeit late) cannot amount to a material change of circumstances entitling him to make a second application for relief from sanctions. By refusing the party’s first application for relief from sanctions, the court would have effectively been saying that it is now too late for that party to comply with the “unless” order and obtain relief from sanctions. If on a second application, the court granted the relief simply because the “unless” order had been complied with late, its reasoning would be inconsistent with the reasoning of the court which heard and determined the first application for relief.
Late compliance subsequent to a first unsuccessful application for relief from sanctions could give rise to a successful second application in certain circumstances (for example where the “unless” order required a payment of money and the court subsequently refused relief from sanctions when the money remained unpaid, the subsequent payment of the money might constitute a material change of circumstances if, for example, the individual inherited a sum of money after the first application). However, in this case, the subsequent compliance with the Unless Order was not accompanied by any explanation suggesting a material change of circumstances since the hearing before Hildyard J and the Deputy Judge had no grounds to entertain the Second Relief Application on its merits.
In any event, the Supreme Court concluded that it was not appropriate for the Deputy Judge to reach a different conclusion on what were essentially the same facts before Hildyard J, or to conclude that the appellants’ former solicitors were partly to blame for any failure on their party to comply with the Unless Order (there was insufficient evidence to justify that finding). The last minute nature of the appellants’ application (one day before the trial and eight weeks after the Debarring Order), without any satisfactory explanation, should also have caused the appellants’ difficulties on their Second Relief Application.
This case provides a useful reminder of the limited circumstances in which a court is going to be willing to vary or revoke a court order. The mere fact that a party subject to a debarring order for failing to comply with an “unless” order to do something within a specified period of time (because relief from sanctions had been refused) subsequently complies with the “unless” order is unlikely to amount to a material change of circumstances. Some other material relevant change in circumstances is likely to be required in order for a party to be entitled to make a second application for relief from sanctions.