James_Johnson_phToday, the Supreme Court will hear the case of Thevarajah v Riordan and Ors. The issue that the Supreme Court must decide on is whether the Court of Appeal erred in holding that late compliance with an ‘unless’ order could not amount to a material change of circumstances so as to justify the variation under the CPR 3.1(7) of an order debarring the appellants’ defence.

The respondent, a businessman, entered into a share purchase agreement in October 2011 to buy the entire issued share capital of Prestige Property Developer UK Limited. The respondent alleges that the contract was not properly performed for a number of reasons and the matter came to a head in February 2013 when the respondent discovered that he was not the sole director of the company. As a result, on 22 March 2013, the respondent issued a Part 8 claim against the appellants.

The respondent also became aware of some irregularities in the financial history of Prestige Property that would potentially jeopardise his shareholding. As a result, the respondent made a without notice application for a worldwide freezing order and obtained an ex parte freezing injunction against the appellants, which froze £2.5m of the appellants’ assets and made an order requiring the appellants to disclose all the assets they held (and all the assets of four companies they had an interest in) by 13 May 2013. The appellants failed to do this and a further, more specific, order was made on 18 May 2013.

The appellants again failed to comply and the respondent subsequently made an application on for an ‘unless’ order – an order stating that unless the required information was disclosed by 4pm on 1 July 2013, the appellants would be debarred from defending the claim and any defence they had filed would be struck out. This order was granted on 21 June 2013.

Non-compliance with the unless order
On 9 August 2013, following non-compliance with the ‘unless’ order by the appellants, an application by the respondent to debar the appellants’ defence was heard. It was heard in conjunction with an application from the appellants for relief from sanctions under CPR 3.9. CPR 3.9 states:

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need:
a. for litigation to be conducted efficiently and at proportionate cost; and
b. to enforce compliance with rules, practice directions and orders”.

Mr Justice Hildyard heard the matter on 9 August 2013. He held that the appellants had failed to comply with the ‘unless’ order and were therefore debarred from defending the claim. He ordered that the defence and counterclaim should be struck out.

A second bite at the cherry
Unusually, instead of appealing against the decision to strike out the defence and counterclaim, the appellants made a second application for relief under CPR 3.9.

In their second application, the appellants claimed that:

  1. the breach of the ‘unless’ order had been remedied and as such they were now in compliance with it;
  2. the reason for the delay in complying was the large amount of disclosure sought, along with the financial limitations impeding their funding for legal costs;
  3. the history of the case demonstrated a considerable effort to comply with the orders;
  4. although they accepted that they were principally responsible for complying with the court orders, some of the previous failures were in part due to their former solicitors; and
  5. the effect of refusing relief from sanction would create an unjust result.

The second application was heard by Mr Andrew Sutcliffe QC. He explained that:

“If an applicant wishes to come back on a second occasion having fully argued the matter on the first occasion, it is imperative for him to show that something is different and that that information could not have been put before the court on the first occasion”.

Mr Sutcliffe QC allowed the second application. He considered that the appellants’ attempts to comply with the order had been frustrated, both by the extent of the disclosure obligations placed on them and also by the actions of their solicitors. He held that the (late) compliance with the order meant that, on the second application, something was different. He agreed with Lord Brooke in Woodhouse v Consignia plc [2002] 1 WLR 2558 that, under CPR 3.9, “a second bite at the cherry” was sometimes permissible without any need to rely on CPR 3.1(7) (“a power of the court under these Rules to make an order includes a power to vary or revoke the order”).

The Court of Appeal
The Court of Appeal overturned the decision of the High Court. It held that Mr Sutcliffe QC had erred in placing such importance on CPR 3.9 and that, to set aside the provisions of the order, a variation or revocation of the order should have been made under CPR 3.1(7). For an application under CPR 3.1 (7), the criteria set out in Tibbles v SIG Plc (t/a Asphaltic Roofing Supplies) [2012] EWCA Civ 518 applied. This set out that the discretion afforded under CPR 3.1(7) would only be properly applied if:
(A): there had been a material change of circumstances since the order was made; or
(B): the facts on which the original decision was made were misstated.

The Court of Appeal held that the appellants’ application “manifestly failed to satisfy” these criteria and that, as such, the second application should have been refused.

The Supreme Court
The Supreme Court appeal will be heard by a panel of five, comprised of Lord Neuberger, Lord Mance, Lord Clarke, Lord Sumption and Lord Hodge. A full case comment on the decision will be provided on this blog once judgment has been handed down.