Jackson Reforms Bite: Judgment for USD 7 Million Ordered Against Non-Complying Defendants
12 March 2014
In the case of Newland Shipping & Forwarding Ltd v Toba Trading FZC: Newland Shipping & Forwarding Ltd v (1) Toba Trading FZC (2) Mr Syed Majed Taheri (3) Mr Hossein Rahbarian  EWHC 210 (Comm), 6 February 2014, Hamblen J has upheld an order against two defendants for failing to produce adequate disclosure, and failing to file witness statements, resulting in judgment being entered against both for over USD 7 million.
Hamblen J applied the Court of Appeal's ruling in Mitchell v News Group Newspapers Ltd  EWCA Civ 1537 finding that the non-compliance was more than trivial and that there were no good reasons for it.
The claimants claimed for unpaid sums due from the three defendants for oil products. Two separate actions were joined. The defendants were an Iranian company (D1), and two individuals (D2 and D3) who were closely involved with it. Trial was scheduled for February 2014. In September 2013 the defendants had produced disclosure ten days late (extension as agreed), but the disclosure had not been provided in separate lists for each defendant, as required by the CPR. The defendants had also not provided any witness statements by the due date of 25 October 2013. One day before witness statements were due to be served the defendants' solicitors, Stephenson Harwood, notified the claimants that they were no longer acting for the defendants. This, it turned out, was due to unpaid fees.
The claimants successfully applied for judgment for non-compliance, which was given against D1 and D3 by Field J on 15 November 2013, during a hearing at which D2 attended (by video link), but was not attended by D1 and D3, who were still unrepresented. Stephenson Harwood were reinstructed on 27 November 2013.
D1 and D3 applied for relief from sanctions under CPR r3.9 and/or for Field J's order to be amended under r3.1(7). Applying Mitchell Hamblen J held that as a general rule relief will not be granted unless (i) the non-compliance was trivial or (ii) there was good reason for the default. Although all the circumstances of the case are relevant, they are of less weight than the "paramount" considerations which are "the need (i) for litigation to be conducted efficiently and at proportionate cost and (ii) to enforce compliance with rules, practice directions and court orders". Compelling circumstances are therefore likely to be required if relief is to be granted for a non-trivial default for which there is no good reason.
Hamblen J was satisfied that there had been serious non-compliance by D1 and D3 by virtue of the inadequate disclosure and lack of timely provision of witness statements, especially given the impending trial date. There were no good reasons for the delay. The lack of legal representation was due to the defendants' failure to pay their solicitors, and the resulting difficulty in filing witness statement without legal representation was a perfectly foreseeable consequence of the choices they had made. It was further noted that the applications for extension of time, adjournment and relief were also made late. No relief should be granted under CPR r3.9. Hamblen J told the defendants that if they wished to challenge whether Field J's ordered should have been made in the first place, they would have to appeal those orders, which was a separate matter to granting (or not granting) relief under r3.9 which was the subject of this application (as r3.9 assumes that the order was properly made in the first place).
Although confident that they were not particularly relevant now, Hamblen J briefly considered the factors to be taken into account under the old CPR 3.9, observing that only one factor had pointed to the granting of relief (no previous non-compliance) whilst all others pointed against the granting of relief.
The defendants' application for Field J's order to be varied under CPR 3.1(7) was also refused save in respect of one issue concerning a mistake as to the amounts payable. Applying Mitchell one of the following "normally" needs to be satisfied for it to be appropriate for the court's discretion to be exercised, namely:
1. whether there has been a material change of circumstances since the order was made;
2. whether the facts on which the original decision was made had been misstated; and
3. whether there has been a manifest mistake on the part of the judge in formulating the order.
Hamblen J was not convinced that any of these factors were present. Any change in circumstances were within the control of the defendants anyway. Any detailed and complex arguments concerning mistake or misstatement were more properly matters for appeal (as they went to whether the orders should have been made, rather than as to how it should have been formulated).
This case makes it clear that a failure to produce proper disclosure and a failure to serve witness statements, especially when a trial is looming, are not considered trivial matters when it comes to considering whether relief can be granted under r3.9. Nor will a lack of legal representation make such a delay justifiable where there is a dispute over fees. Hamblen J's judgment clarifies how r3.9 and r3.7 operate, and how they are not designed to deal with any arguments concerning whether the order under appeal should have been made in the first place. Hamblen J's consideration of the factors under the old 3.9 seemed to be undertaken reluctantly, however they were considered. Perhaps it was with an eye to a potential appeal that this exercise was undertaken but it does leave some uncertainty as to whether these old factors are still relevant.
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