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||Neutral Citation Number:  EWCA Civ 463
||Case No: A3/2006/2201(A)&(B)
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
(Mr. Justice Morison)
2004 Folio 374
||Royal Courts of Justice
Strand, London, WC2A 2LL
||17 May 2007
B e f o r e :
LORD JUSTICE PILL
LORD JUSTICE KEENE
LORD JUSTICE MOORE-BICK
|| MARCAN SHIPPING (LONDON) LIMITED
||- and -
||(1) GEORGE KEFALAS
(2) CANDIDA CORPORATION
(Transcript of the Handed Down Judgment of
WordWave International Ltd
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7421 4040 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr. Neil Henderson (instructed by Jackson Parton) for the appellant
Mr. Graham Charkham (instructed by Thomas Cooper & Stibbard ) for the respondents
Hearing dates : 28th March 2007
HTML VERSION OF JUDGMENT
Crown Copyright ©
Lord Justice Moore-Bick :
- This is an appeal against the order of Morison J. made on 5th September 2006 dismissing the claim and giving judgment in favour of the respondents for the costs of the action to be assessed on the indemnity basis following the appellant's failure to comply with the terms of a conditional order in traditional "unless" form that he himself had made on 21st July 2006.
- For many years the appellant, Marcan Shipping (London) Ltd ("Marcan"), carried on business as a shipbroker in the London market under the control of Mr. Dimitrios Yamvrias. The first respondent, Mr. George Kefalas, has for many years been concerned in the ownership and operation of vessels through various companies operated under his direction. One of those companies, Candida Corporation, which acts as his ship management company, is a defendant in the present proceedings and the second respondent to this appeal.
- In May 2004 Marcan began proceedings against Mr. Kefalas and Candida seeking damages for the wrongful termination of a general agency agreement alleged to have been made orally between Mr. Yamvrias and Mr. Kefalas in 1982. Mr. Kefalas denies that there was any such general agency agreement; he says that Marcan was instructed to act as a broker from time to time to charter vessels belonging to companies he managed, for which it received commission in the ordinary way. He also says that if there was any general agency agreement of the kind alleged by Marcan, he was entitled to terminate it as a result of Mr. Yamvrias's dishonest behaviour. Marcan also alleges that Mr. Kefalas made a number of false representations between 1982 and 2003 as a result of which it suffered loss and damage in an amount which has yet to be quantified. The respondents deny that and say that any representations that may have been made were no more than statements of intention and belief and were honestly held.
- It is clear from that brief description of the proceedings that the action should have been brought to trial as quickly as possible. Not only do the events with which it is concerned stretch back over the best part of twenty-five years, but Mr. Yamvrias and Mr. Kefalas are both elderly men whose recollection of the circumstances which lie at the heart of the dispute is likely to become less reliable as time passes. Regrettably, however, the proceedings have not been conducted with the degree of expedition their nature called for.
- The matter came before the court for a case management conference on 31st October 2005. On that occasion directions were given leading to a trial commencing on a date to be fixed not before 6th June 2006. It was subsequently fixed to begin on 3rd July 2006. However, on 12th May 2006 the matter came before Langley J. on the respondents' application for permission to amend their defence and counterclaim. The judge gave permission to make the amendment, vacated the existing trial date and directed that issues relating to liability only should be determined at a trial to begin on 16th October. At the same time he ordered the parties to give further disclosure of documents relating to matters put in issue as a result of the amendment, including specific documents or classes of documents referred to in the order. Among the documents that Marcan was ordered to disclose were certain documents and correspondence passing between it and the Baltic Exchange and the pleadings and witness statements in certain proceedings brought by Mr. Yamvrias in Greece to which he had referred in a statement made in March 2003. The judge directed that disclosure was to be made by list and by service of copies of all the listed documents in respect of which the claimant did not claim privilege, in each case by 16.00 on 23rd June 2006. The judge also ordered Marcan to give additional security for the respondents' costs of the proceedings in the sum of £80,000.
- Marcan failed to comply with the order of Langley J. and so the matter came back before Morison J. on 21st July 2006. On that occasion the judge made an order that unless the claimant gave disclosure and provided security for costs in accordance with the order of Langley J. by 16.30 on 26th July 2006
"the claimants' claim shall be dismissed and it is ordered and adjudged that the claimants pay the defendants' costs on an indemnity basis, such costs to be assessed if not agreed . . . "
- On 26th July 2006 the claimant served a list of documents which it is now accepted was materially defective inasmuch as it did not include certain documents passing between Marcan and the Baltic Exchange or any of the documents in the Greek proceedings. Accordingly, on 28th July the respondents made an application to the court pursuant to CPR rule 3.5 for an order that the claim be dismissed and that the appellant be adjudged liable to pay the respondents' costs on an indemnity basis. That application was supported by a witness statement made by their solicitor in which he identified the classes of documents which it was said Marcan had failed to disclose and grounds upon which it was said that there had been a failure to comply with the order of 21st July.
- The application came before Morison J. on 5th September 2006. By that time Mr. Yamvrias had obtained the papers relating to the Greek proceedings and had provided copies to the respondents, but there was no evidence before the judge to explain why Marcan had failed to comply with the order made on 21st July, or what steps had been taken to enable it to do so; nor was any application made to the court under rule 3.8 for relief from the sanction imposed by that order. At the hearing counsel for Marcan, acting on instructions, sought to persuade the judge that his client had not failed to comply with the order at all, or that, if it had, that the breach was not sufficiently serious to justify striking out the claim. The judge was not impressed. He referred to the fact that Marcan had had to be "pushed and bullied" into complying with its obligations under the rules and that different judges had made a large number of "unless" orders in order to force it to do so. He found that there had been a very clear breach of the order in relation to the Baltic Exchange documents and the documents in the Greek proceedings, and he commented on the absence of any evidence from Mr. Yamvrias describing the efforts he had made to comply with it. He also referred to criticisms made of Mr. Yamvrias's conduct made by another judge in earlier unrelated proceedings. The judge considered that in all the circumstances it was just and proportionate for the claim to be struck out and for the order, as he put it, to be "activated". He therefore made an order in the terms sought by the respondents striking out the claim and giving judgment for the respondents for damages to be assessed on the indemnity basis.
- Marcan's primary ground of appeal is that the striking out of a claim for failure to comply with an order of the court cannot be justified unless the breach is so serious as to prevent there being a fair trial, a requirement which the judge had failed to consider and which was not satisfied in this case. In support of that argument it relied on the decision of Millett J. in Logicrose Ltd v Southend Football Club Ltd  1 W.L.R. 1256, a case decided when the Rules of the Supreme Court were in force and to which it will be necessary to refer in some detail at a later stage. It also said that the judge was wrong to take into account the behaviour of Mr. Yamvrias in the conduct of earlier litigation. When giving permission to appeal Sir Henry Brooke questioned whether the approach adopted under the Rules of the Supreme Court to questions of this kind should be applied to cases conducted under the Civil Procedure Rules ("CPR") and noted that there had been no application for relief under rule 3.8.
- In order to ensure that its process is not subverted so as to become an instrument of injustice every procedural system must place at the disposal of the court the power to manage proceedings before it, if necessary by imposing sanctions on litigants who fail to comply with its rules and orders. The ultimate sanction, of course, is to dismiss the claim or strike out the defaulting party's statement of case. A well-recognised way of imposing a degree of discipline on a dilatory litigant is to make what is known as an "unless" order by which a conditional sanction is attached to an order requiring performance of a specified act by a particular date or within a particular period. Although the CPR have given the court greater powers to control proceedings and a greater responsibility for ensuring that they are conducted fairly and efficiently, for reasons which will become clear in due course I do not think that there is a significant difference between the approach to this problem adopted under the former Rules of the Supreme Court and that which is now embodied in the CPR.
- "Unless" orders have a long history, dating back well into the nineteenth century and it was recognised at an early stage that once the condition on which it depended had been satisfied, the sanction became effective without the need for any further order. In Whistler v Hancock (1878) 3 Q.B.D. 83 the defendant obtained an order that unless the statement of claim were delivered within a week the action should be at an end. The plaintiff failed to serve a statement of claim and applied for relief, but the time allowed under the order expired before his application could be heard. The Divisional Court held that the court had no jurisdiction to grant relief because once the condition had been satisfied the action had come to an end and no longer existed. The decision was followed the next day in Wallis v Hepburn (1878) 3 Q.B.D. 84n. The same conclusion was reached in King v Davenport (1879) 4 Q.B.D. 402 where a summons issued on the last day for compliance with a conditional order in similar terms was adjourned to the next day. The court held that once the prescribed time had expired the Master had no jurisdiction to extend time because the action had ceased to exist. The fact that in the event of default the order operated without the further intervention of the court led Greene L.J. in Abalian v Innous  2 All E.R. 834, 838 to draw attention to the importance of ensuring that the order was precise in its terms to ensure that the party to whom it was directed should be in no doubt about what he needed to do to avoid the action being dismissed.
- The decisions in Whistler v Hancock, Wallis v Hepburn and King v Davenport were finally laid to rest in Samuels v Linzi Dresses Ltd  Q.B. 115. In that case an order was made that unless further and better particulars of the defence were served by a certain date the defence and counterclaim should be struck out and the plaintiff should be at liberty to sign judgment for damages to be assessed. The particulars were served three days late, but the defendant applied for, and obtained from the judge, an extension of time, the effect of the order being to relieve it from the sanction. Having referred to the earlier authorities and the attempts to distinguish them, Roskill L.J., with whom Lawton L.J. and Sir Stanley Rees agreed, held that they should no longer be followed and that the court does have jurisdiction to extend time even after there has been a failure to comply with an "unless" order. However, he emphasised that the power was one which should be exercised cautiously and with due regard to the necessity for maintaining the principle that orders are made to be complied with and not to be ignored: see page 126.
- Although it overruled the decisions in the earlier cases, however, the court said nothing in Samuels v Linzi Dresses to suggest that the sanction imposed by an "unless" order did not continue to take effect in accordance with its terms if the order was not complied with. Nonetheless, whether it was because of a need in most cases to establish that there had been a breach of the order, or because the decision in that case had led parties to think that the court would grant relief to a party in default if he could provide a satisfactory explanation for his failure to comply with the order, it seems to have become common for the party seeking to take advantage of a breach to apply to the court for the sanction to be imposed, particularly in cases where the sanction was the striking out of a pleading. Thus, in Hytec Information Systems Ltd v Coventry City Council  1 WLR 1666, to which Mr. Henderson drew our attention, the plaintiff's response to the defendant's failure to comply with an "unless" order for the service of particulars which provided that in default of compliance the defence and counterclaim should be struck out was to make a further application to the court to have the pleading struck out. That led to a blurring of the distinction between the effect of the order itself and the exercise of the court's jurisdiction to grant relief with the result that, although there had been no application for an extension of time, the court considered it necessary to discuss the factors that should be taken into account in deciding whether to strike out the pleading for failure to comply with the order.
- So far I have been considering the position as it stood prior to the introduction of the CPR. I am conscious that in Biguzzi v Rank Leisure Plc  1 WLR 1926 Lord Woolf M.R. endorsed the view that decisions under the former Rules of the Supreme Court were likely to be of limited assistance in construing the CPR which gave the court broader and more flexible powers to manage proceedings. Nonetheless, since one of the main authorities on which Marcan relied, Logicrose v Southend, was decided well before the CPR came into force, I think that there is some value to be gained from considering how conditional orders were treated at that time. As I have sought to show, such orders are not a recent phenomenon and reference to the earlier authorities sheds some useful light on the context in which that case was decided. One can see, in fact, from the cases to which I have referred that it was accepted, both prior to and after the decision in Samuels v Linzi Dresses, that a failure to comply with an "unless" order caused the sanction to become effective without the need for any further order and although this court held that there is jurisdiction to grant relief by extending time for compliance, it appears also to have accepted that the onus was on the person against whom the sanction operated to seek relief. Although, as I have said, the distinction between the operation of the sanction and the exercise of the court's discretion to grant relief may subsequently have become blurred, it does not appear to have been altogether lost.
Part 3 of the Civil Procedure Rules
- Before turning to the appellant's submissions it is necessary to refer to the provisions of the CPR governing the court's power to strike out statements of case and to grant relief from sanctions imposed for failure to comply with the rules, practice directions or orders of the court. They are to be found within Part 3 which is headed "The court's case management powers" and which, so far as is material for present purposes, provides as follows:
"3.1 The court's general powers of management
(1) . . . . . .
(2) Except where these Rules provide otherwise, the court may –
(a) extend or shorten the time for compliance with any rule, practice direction or court order (even if an application for extension is made after the time for compliance has expired);
(3) . . . . . .
(b) specify the consequence of failure to comply with the order or a condition.
3.3 Court's power to make order of its own initiative
(1) Except where a rule or some other enactment provides otherwise, the court may exercise its powers on an application or of its own initiative.
. . . . . .
3.4 Power to strike out a statement of case
(1) . . . . . .
(2) The court may strike out a statement of case if it appears to the court
(a) . . . . . .
(b) . . . . . .
(c) that there has been a failure to comply with a rule, practice direction or court order.
3.5 Judgment without trial after striking out
(1) This rule applies where –
(a) the court makes an order which includes a term that the statement of case of a party shall be struck out if the party does not comply with the order; and
(b) the party against whom the order was made does not comply with it.
(2) A party may obtain judgment with costs by filing a request for judgment if –
(a) the order referred to in paragraph (1)(a) relates to the whole of a statement of case; and
(b) where the party wishing to obtain judgment is the claimant, the claim is for –
(i) a specified amount of money;
(ii) an amount of money to be decided by the court;
(iii) delivery of goods where the claim form gives the defendant the alternative of paying their value; or
(iv) any combination of these remedies.
(3) . . . . . .
(4) . . . . . .
(5) A party must make an application in accordance with Part 23 if he wishes to obtain judgment under this rule in a case to which paragraph (2) does not apply.
3.6 Setting aside judgment entered after striking out
(1) A party against whom the court has entered judgment under rule 3.5 may apply to the court to set the judgment aside.
(2) An application under paragraph (1) must be made not more than 14 days after the judgment has been served on the party making the application.
(3) If the right to enter judgment had not arisen at the time when judgment was entered, the court must set aside the judgment.
(4) If the application to set aside is made for any other reason, rule 3.9 (relief from sanctions) shall apply.
. . . . . . . . . .
3.8 Sanctions have effect unless defaulting party obtains relief
(1) Where a party has failed to comply with a rule, practice direction or court order, any sanction for failure to comply imposed by the rule, practice direction or court order has effect unless the party in default applies for and obtains relief from the sanction.
. . . . . . . . .
3.9 Relief from sanctions
(1) On an application for relief from any sanction imposed for a failure to comply with any rules, practice direction or court order the court will consider all the circumstances including –
(a) the interests of the administration of justice;
(b) whether the application for relief has been made promptly;
(c) whether the failure to comply was intentional;
(d) whether there is a good explanation for the failure;
(e) the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant preaction protocol;
(f) whether the failure to comply was caused by the party or his legal representative;
(g) whether the trial date or the likely trial date can still be met if relief is granted;
(h) the effect which the failure to comply had on each party; and
(i) the effect which the granting of relief would have on each party.
(2) An application for relief must be supported by evidence."
- Perhaps the first thing to note about Part 3 is that it is concerned with the court's powers of management generally. The court's power under rule 3.1(3)(b) to impose sanctions for the failure to comply with an order is but one of a wide range of powers designed to ensure that proceedings are conducted efficiently, not only in the interests of the parties themselves, but also in the wider interests of the administration of justice and the furtherance of the overriding objective. Of particular relevance to the present case are the powers to extend time for compliance with any rule, practice direction or court order, even where time has already expired (rule 3.1(2)(a)) and the court's power to make orders of it own initiative (rule 3.3). The general power to strike out a party's statement of case for failure to comply with a rule, practice direction or court order (rule 3.4(2)(c)) must be viewed in this context.
- Mr. Henderson's primary submission was that the judge was wrong to strike out the claim for failure to comply with the order for disclosure because the default was not deliberate or contumacious, it was still possible for there to be a fair trial and the respondents would not suffer any significant prejudice as a result of Marcan's default. He submitted that since the purpose of disclosure is simply to ensure a fair trial, the court's attitude to a failure to comply with an order for disclosure should differ from that which it might adopt to other failures to comply with procedural directions and should only strike out the claim if there is a real risk that the failure to give disclosure will prevent there being a fair trial. In support of that submission he relied on Logicrose Ltd v Southend United Football Club Ltd, Arrow Nominees Inc v Blackledge  2 BCLC 167 and Raja v Van Hoogstraten  EWCA Civ 968;  4 All ER 793.
- Logicrose v Southend United was an unusual case; indeed, Millett J. described the application as being of an unprecedented kind. During the trial of the action, shortly before the conclusion of the plaintiff's case, the defendant applied for an order that the action be dismissed, that the defence to counterclaim be struck out and that judgment be entered for the defendant on the counterclaim on the grounds that the plaintiff had failed to comply with its duty in relation to discovery by deliberately suppressing a crucial document. Millett J. recognised that deliberate disobedience to a peremptory order for discovery is a contempt of court which, if proved, might be punished accordingly, but he expressed the view that to debar a litigant in contempt from taking any further part in the proceedings and to give judgment against him would not be an appropriate response. He accepted, however, that it might be an appropriate response to a failure to give discovery if that failure had rendered a fair trial impossible. The following passage in his judgment, which has been repeated and relied upon in later cases, formed the foundation of the claimant's argument:
"I do not think that it would be right to drive a litigant from the judgment seat without a determination of the issues as a punishment for his conduct, however deplorable, unless there was a real risk that that conduct would render further conduct of the proceedings unsatisfactory. The court must always guard itself against the temptation of allowing its indignation to lead to a miscarriage of justice."
- Mr. Henderson submitted that this statement of principle had been adopted and approved by this court in Arrow Nominees v Blackledge, but in my view that is to put the matter too high. In that case the respondents to a petition under section 459 of the Companies Act 1985 applied to strike out the proceedings on the grounds that the petitioners had produced a number of forged documents on disclosure and that a fair trial was therefore impossible. Although the judge had found that there could no longer be a fair trial of some of the petitioners' allegations, he held that there could nonetheless be a fair trial of the petition as a whole and dismissed the application. Chadwick L.J. concluded that the judge was wrong to hold that the petition could succeed once the allegations affected by the fraud were put on one side and was in favour of allowing the appeal on that ground, but he also held that the court is entitled to strike out proceedings where a litigant's conduct places the fairness of the trial in jeopardy or amounts to such an abuse of the process as to render further proceedings unsatisfactory. He also recognised that the court is entitled to take account of the wider interests of justice as reflected in the overriding objective. Although he adopted as a general principle the observations of Millett J. in Logicrose v Southend United, therefore, his observations, with which both Roch and Ward L.JJ. agreed, reflect a more robust approach to litigants whose conduct is liable to subvert the overall fairness of the proceedings. Moreover, Ward L.J. was at pains to emphasise that the principles embodied in the CPR may justify a more robust approach to litigants whose conduct is liable to have that effect.
- The decision in Raja v Van Hoogstraten relates to one particular aspect of the long-running litigation between Mr. Mohammed Raja and Mr. Nicholas van Hoogstraten into which there intruded the death of Mr. Raja. Mr. van Hoogstraten was charged with his murder and with conspiracy to murder. On 19th and 22nd July 2002 following a trial at the Central Criminal Court he was acquitted of both charges but convicted of manslaughter. (His conviction was later quashed on appeal and although a retrial was ordered the fresh indictment was itself quashed.) Following Mr. Raja's death the proceedings were continued by his son acting as his personal representative.
- On 8th August 2002, while Mr. van Hoogstraten's conviction still subsisted, the claimant sought an order that the defence and counterclaim be struck out on the grounds that it would be an abuse of process for him to continue to defend the action and that his involvement in the death of Mr. Raja put the fairness of any trial in jeopardy and would prevent the court from doing justice. That application was fixed for hearing in November 2002.
- Meanwhile, on 27th August 2002 the claimant had obtained a worldwide freezing order without notice against Mr. van Hoogstraten in the sum of £5 million. The order contained a paragraph requiring Mr. van Hoogstraten within one week to provide the applicant's solicitors with details of all his assets anywhere in the world exceeding £10,000 in value and within 14 days to make an affidavit confirming that information. Mr. van Hoogstraten notified the court that he wished to challenge that order and on 25th September 2002 he issued an application to set it aside. In the meantime he took no steps to comply with the order for disclosure. As a result on 2nd October 2002 the claimant applied for an order that he be committed for contempt of court.
- When the application for committal came on for hearing on 11th October in the absence of Mr. van Hoogstraten (who was then in prison) the judge found that he was in contempt of court and imposed a fine on him by way of punishment. He did not at that stage consider his application to set aside the freezing order and when the matter came back before him on 31st October (Mr. van Hoogstraten then being present) he explained that he would not entertain that application until Mr. van Hoogstraten had complied with the order for disclosure. Mr. van Hoogstraten suggested that that was to put the cart before the horse, but the judge disagreed.
- The application to strike out the claim had been fixed for 13th November, but when it came before the court on that date it was adjourned to 27th November. The time for serving evidence in relation to that application was extended to 20th November, as was the time for complying with the order for the disclosure of assets, but the order for disclosure was varied by adding a provision in "unless" terms, so that in default of compliance the defence and counterclaim would be struck out and Mr. van Hoogstraten debarred from defending the action.
- The application was eventually heard on 9th and 10th December. By that time the claimant had obtained permission to add another ground based on Mr. van Hoogstraten's failure to comply with the "unless" order made on 13th November. The judge ordered that the defence and counterclaim be struck out on the grounds of his continuing failure to comply with the order to disclose his assets and on the grounds that his conduct in relation to Mr. Raja had undermined the fairness of the trial. By the time the matter reached this court, however, Mr. van Hoogstraten's conviction had been quashed and he no longer faced criminal proceedings in relation to Mr. Raja's death. The only ground on which the order striking out the defence and counterclaim could be supported, therefore, was his failure to comply with the order for disclosure made on 27th August supported by the "unless" order of 13th November. Chadwick L.J. held that the judge's decision could not be supported on those grounds for two reasons. First, he considered that the order for disclosure was too vague in its terms so that there was real doubt about what Mr. van Hoogstraten had to do to comply with it. The order was therefore not a sufficient basis for a finding of contempt or for an "unless" order providing for the striking out of his defence and counterclaim in the event of default. Secondly, even if that had no been the case, he did not consider that striking out the defence and counterclaim was a proper response to the failure to make disclosure in aid of a freezing order which was itself no more than ancillary to the proceedings. In that context he drew attention to the observations of Millett J. in Logicrose v Southend and pointed out that there was no risk that the failure to make disclosure in aid if the freezing order would jeopardise the fairness of the trial of the real issues in the action.
- Mr. Henderson placed a good deal of reliance on these authorities, but I do not think they support his case. Logicrose v Southend was not concerned with the consequences of failing to comply with a conditional order; it was concerned with an application to dismiss the action for failure to comply with the rules relating to discovery – an application that today would be made under CPR rule 3.4(2)(c). On an application of that kind the court will inevitably have to consider the circumstances in which the default occurred and its consequences both for the future of the proceedings and more generally. In the event the judge dismissed the application because he was not satisfied that there had been a deliberate attempt to suppress the document in question, but it is fair to say that he would have dismissed it in any event once the document had been produced because he considered that there could still be a fair trial. It is unnecessary for present purposes to consider whether the factors that were decisive in influencing the judge in that case would necessarily carry the same weight today in the light of the court's duty to further the overriding objective and the range of matters to which it must have regard for that purpose. The observations of Chadwick and Ward L.JJ. in Arrow Nominees Inc v Blackledge suggest that they might not. It is clear, however, that the court was not concerned with a situation of the kind that arises in the present case.
- The same may be said of the decision in Arrow Nominees Inc v Blackledge. In that case no question arose of a failure to comply with a conditional order; the court was concerned only with an application to strike out the petition as constituting an abuse of process. The case did, therefore, raise issues of a broadly similar nature to those considered in Logicrose v Southend, but it did not call for consideration of the consequences of a failure to comply with a conditional order. Only in Raja v Van Hoogstraten had there been a failure to comply with an order of that kind, but in that case it did not form the primary ground of the application to strike out the defence and counterclaim and the court did not deal with the issue in those terms. Accordingly, none of these authorities is directly in point in the present case. It is interesting to note, however, that, as Pill L.J. explains, the claimant in Raja v Van Hoogstraten did submit that because of the nature of the order the sanction for which it provided should be given effect and that the court rejected that argument without expressly dealing with it, in effect granting relief of its own initiative.
The effect of CPR Part 3
- The starting point in the present case must be the terms of the Rules themselves. Rule 3.1(3)(b) expressly gives the court the power when making an order to specify the consequences of failure to comply with its terms and rule 3.8(1) expressly provides that where a party has failed to comply with an order any sanction imposed by the order has effect unless the party in default applies for and obtains relief from the sanction. This makes it clear, in my view, that no further order is required to render the sanction effective; on the contrary, the onus is on the defaulting party to take steps to obtain relief. Moreover, in case there should be any doubt about the effect of a failure to comply with an order of this kind paragraph 1.9 of the Practice Direction supplementing Part 3 states that
"where a rule, practice direction or order states 'shall be struck out or dismissed' or 'will be struck out or dismissed' this means that the striking out or dismissal will be automatic and that no further order of the court is required."
That is reflected in the following observations of Brooke L.J. in Sayers v Clarke Walker (Practice Note)  1 WLR 3095:
"The philosophy underpinning CPR Pt 3 is that rules, court orders and practice directions are there to be obeyed. If a sanction is imposed in the event of non-compliance, the defaulting party has to seek relief from the sanction on an application made under CPR 3.9, and in that event the court will consider all the matters listed in CPR 3.9, so far as relevant."
As a result a clear distinction is maintained in the CPR between the operation of the sanction and the exercise of the court's discretion to grant relief. That is reflected in the terms of rule 3.5(1) and (2) which allow a claimant to enter judgment without further order where the claim is for a sum of money or for the delivery of goods or payment of their value and the sanction is the striking out of the defence in its entirety.
- In the present case a degree of misunderstanding appears to have arisen from the terms of rule 3.5(5) which provides that, except in the cases covered by rule 3.5(2), a party must make an application under Part 23 if he wishes to obtain judgment following the failure by the party to whom it is addressed to comply with a conditional order striking out his statement of case in the event of non-compliance. If it is thought that the party seeking to take advantage of the default must apply to the court in order to render the sanction effective, in my view that is wrong. The sanction takes effect without further order and the statement of case is struck out; it follows, therefore, that it is unnecessary and inappropriate to make an application under rule 3.5(5) or rule 3.4(2)(c) for an order to that effect. If, however, the party seeking to take advantage of the failure to comply wishes to obtain judgment in his favour, he must, except in those cases covered by rule 3.5(2), make an application to the court to enable it to determine whether he is entitled to judgment as a result and, if so, in what form. In such cases the operation of the sanction does not lie in the discretion of the court; only if there is an application under rule 3.8 is the court required to consider whether, in all the circumstances, it is just to make an order granting relief from the consequences that would otherwise follow.
- The scheme of the Rules relating to conditional orders is in my view both clear and salutary in its effect, namely, that such orders mean what they say, that the consequences of non-compliance take effect in accordance with the terms of the order, but that the court has ample power to do justice under rule 3.8 on the application of the party in default, or, in an exceptional case, acting on its own initiative. However, counsel drew our attention to two further decisions of this court which were said to point to a different conclusion.
- The first of these decisions was Carlco v Chief Constable of Dyfed-Powys Police  EWCA Civ 1754 (unreported) to which the judge had briefly referred. That case concerned an order striking out the claim for failure to comply with an order that unless the claimant gave disclosure of certain documents within a limited period of time the claim should be struck out. The claimant served a statement rather than a list of documents in purported compliance with the order, but at the next case management conference the judge found that there had been gross breaches of the order and noted that the claimant had made no application to extend time for compliance or any other form of relief from the sanction imposed by it. He therefore struck out the claim. On appeal the claimant submitted that the judge had been wrong to find that there had been a gross breach of the order and should not therefore have struck out the claim. Simon Brown, May and Clarke L.JJ. all concluded with undisguised reluctance that although there had been breaches of the order they could not properly be characterised as "gross" and that the judge had therefore been wrong to strike out the claim.
- I think that Mr. Henderson is entitled to say that in that case the court did proceed on the basis that following a failure to comply with an "unless" order striking out the claim it was for the judge to consider afresh whether to order that the claim should indeed be struck out and that such an order could properly be made only if the breach was "gross", or at any rate sufficiently serious to justify such consequences. One finds no reference in the judgments to rule 3.8, however, and it does not appear to have occurred to the defendant to argue that the sanction had already taken effect. I find that particularly surprising given that the judge below specifically referred to the fact that the claimant had not made any application for relief from the sanction imposed by the order. I can only conclude, therefore, that when the matter was before the judge the parties proceeded on the assumption that it was for him to decide whether in all the circumstances the sanction should take effect and that the appeal was conducted on the same basis. In view of the absence of any reference to the provisions of CPR Part 3, I do not think that we are bound to treat that decision as binding in relation to the issues now before us.
The other case to which we were referred was Keen Phillips v Field  EWCA Civ 1524;  1 WLR 686. That case concerned a claim by a firm of accountants for outstanding fees in respect of which it sought summary judgment. The District Judge dismissed the application and on the claimant's application for permission to appeal the Circuit Judge directed that an approved transcript of the judgment be lodged with the court by 31st January 2006, failing which permission to appeal would be refused. Time for lodging the transcript was subsequently extended by a week, but in the event through no fault of the claimant it was lodged one day late (although still six days before the date fixed for the hearing). At the hearing of the appeal the judge further extended time for lodging the transcript, gave permission to appeal and allowed the appeal, giving judgment for the claimant. The defendant appealed on the grounds that the judge had no jurisdiction to extend time because the sanction had taken effect, there had been no application for relief, and the general power under rule 3.1(2)(a) to extend time was excluded by rule 3.8 which only allowed the court to grant relief if the party in default made an application for it. Jonathan Parker L.J., with whom I agreed, held that the court's power to extend time under rule 3.1(2)(a) and to act on its own initiative under rule 3.3(1) are not cut down by rule 3.8 so that the judge had jurisdiction to make the order extending time for lodging the transcript.
- Keen Phillips v Field was a very unusual case. The only question for decision was whether the court had jurisdiction to grant relief from sanctions under rule 3.8 in the absence of an application by the party in default. This court held that despite the wording of rule 3.8, which naturally assumes that the party in default will make an application for relief, the court has jurisdiction to act of its own initiative in an appropriate case. However, the jurisdiction is one which is likely to be exercised only rarely because it will usually be necessary for evidence to be placed before the court to enable it to consider the various matters to which rule 3.9 refers. In that case, however, there was no dispute relating to the manner in which the judge had exercised his discretion, and rightly so, because it was accepted that the claimant's failure to comply with the order had resulted from matters wholly outside its control, had caused no prejudice of any kind to the defendant and had had no adverse effect on the course of the proceedings.
- In my view it should now be clearly recognised that the sanction embodied in an "unless" order in traditional form takes effect without the need for any further order if the party to whom it is addressed fails to comply with it in any material respect. This has a number of consequences, to three of which I think it is worth drawing particular attention. The first is that it is unnecessary, and indeed inappropriate, for a party who seeks to rely on non-compliance with an order of that kind to make an application to the court for the sanction to be imposed or, as the judge put it, "activated". The sanction prescribed by the order takes effect automatically as a result of the failure to comply with its terms. If an application to enter judgment is made under rule 3.5(5), the court's function is limited to deciding what order should properly be made to reflect the sanction which has already taken effect. Unless the party in default has applied for relief, or the court itself decides for some exceptional reason that it should act of its own initiative, the question whether the sanction ought to apply does not arise. It must be assumed that at the time of making the order the court considered all the relevant factors and reached the decision that the sanction should take effect in the event of default. If it is thought that the court should not have made an order in those terms in the first place, the right course is to challenge it on appeal, but it may often be better to make all reasonable efforts to comply and to seek relief in the event of default.
- The second consequence, which follows from the first, is that the party in default must apply for relief from the sanction under rule 3.8 if he wishes to escape its consequences. Although the court can act of its own motion, it is under no duty to do so and the party in default cannot complain if he fails to take appropriate steps to protect his own interests. Any application of this kind must deal with the matters which the court is required by rule 3.9 to consider.
- The third consequence is that before making conditional orders, particularly orders for the striking out of statements of case or the dismissal of claims or counterclaims, the judge should consider carefully whether the sanction being imposed is appropriate in all the circumstances of the case. Of course, it is impossible to foresee the nature and effect of every possible breach and the party in default can always apply for relief, but a conditional order striking out a statement of case or dismissing the claim or counterclaim is one of the most powerful weapons in the court's case management armoury and should not be deployed unless its consequences can be justified. I find it difficult to imagine circumstances in which such an order could properly be made for what were described in Keen Phillips v Field as "good housekeeping purposes".
Application of the principles to the present case
- The effect of the order made on 21st July 2006 was that in default of compliance the claim stood dismissed and Marcan became liable to pay the defendants' costs in an amount to be assessed. As a result the defendants became entitled to obtain judgment in their favour, but since the party in default in this case was the claimant, it was necessary for them to make an application to the court in order to do so: see rule 3.5(5); and since there was a dispute about whether Marcan had failed to comply with the order, it was necessary for that application to be supported by evidence setting out in sufficient detail the nature and extent of the alleged default. In its opposition to the defendants' application Marcan relied on a witness statement made by Mr. Yamvrias on 11th August 2006, in which he sought to demonstrate that all relevant documents had been disclosed, and on correspondence between the parties' solicitors culminating in a letter from Marcan's solicitors to the defendants' solicitors dated 1st September enclosing further documents relating to the Greek proceedings.
- The only matters the judge had to decide when the matter came before him on 5th September, therefore, were whether the evidence was sufficient to establish a breach of the order of 21st July, and if so, whether the order being sought by the defendants properly reflected the effect of the sanction which that order had contained. Consistently with that view, the defendants in their skeleton argument submitted that the only issue for the court to decide was whether Marcan had complied with the order, and indeed in an early paragraph of its own skeleton Marcan appeared to recognise that that was so. However, having dealt with that question, it then submitted that, even if it was in default, it would not be appropriate to respond by striking out the claim. Ignoring the effect of rules 3.8 and 3.9, it submitted that the matter fell to be determined under rule 3.4(2)(c), which gives the court a general power to strike out a statement of case for failure to comply with a rule, practice direction or court order. It contended that the claim was not without a real prospect of success and that any failure to comply was not gross, relying on the decision of this court in Carlco v Chief Constable of Dyfed-Powys Police, to which I referred earlier. However, it failed to make any application under rule 3.8 for relief from the sanction imposed by the original order.
- It appears that both the judge and the defendants themselves may have been misled by those submissions and by the requirements of rule 3.5(5) into approaching the matter as if it were an application under rule 3.4(2)(c) to strike out the claim for failure to comply with an order of the court to which no specific sanction had been attached. If that had been the case, it would have been necessary for the judge to consider all the circumstances before deciding whether it was appropriate to make such an order, but it was not and he should therefore have confined himself to the question whether the order being sought by the defendants properly reflected the effect of Marcan's failure to comply with the order made on 21st July. In the event, however, having found that there was a clear breach of that order, the judge asked himself whether he should, in his words, "activate" the sanction for which it provided. In the light of the nature of the default and Marcan's previous failures to comply with the court's orders he considered that he should do so and made the order sought by the defendants.
- I am quite satisfied that the order made by the judge was right in all the circumstances, but for the reasons I have given I do not think he should have approached the matter in quite the way he did. It is possible that if its attention had been drawn to rule 3.8, even at the hearing, Marcan might have asked for an adjournment to enable it to make an application for relief, but such an application would have required consideration of the various factors mentioned in rule 3.9 and could not have been dealt with on the material then before the court. Apart from anything else, it would have been necessary to give the defendants an opportunity to file evidence in response. In those circumstances it would have been necessary for the judge to consider whether it would be appropriate to impose on the defendants the additional delay and expense to which such an application would inevitably have given rise, but since no such application was made, it did not become necessary to do so. At one point Mr. Henderson sought to suggest that the defendants had acquiesced in the judge's assumption that he had a discretion whether to apply the sanction and should therefore not be allowed to argue the contrary before us. However, they had made their primary case quite clear in their skeleton argument and the fact that they were subsequently drawn into joining issue with Marcan on a false ground should not in my view preclude them from advancing that case before this court.
- Marcan has made no fewer than three separate applications to rely on further evidence in support of the present appeal, all directed to the question whether it would be appropriate in all the circumstances for its claim to be dismissed. The first, made on 24th January 2007, relates to an affidavit sworn by Mr. Yamvrias on 27th October 2006 in which he identified further documents that Marcan ought to have disclosed. In that statement he sought to explain how those documents had been overlooked and to describe the additional disclosure that had been given by the time of the hearing on 5th September. The second application relates to a statement made by Marcan's solicitor, Mr. Andrew Patrinos, explaining why certain disclosable documents had not been located until October 2006. The third application relates to a further affidavit sworn by Mr. Yamvrias on 2nd March 2007 in which he describes the steps taken to give disclosure of the documents relating to the Greek proceedings and provides an explanation of Marcan's failure to comply with the terms of the order in relation to those documents.
- In my view each of those applications should be dismissed. Some of the evidence which they seek to introduce could with reasonable diligence have been placed before the judge who made it clear in the course of the hearing that he would consider an application for an adjournment to enable information which was then being provided to the court by counsel on instructions to be put in proper form. However, Marcan chose not to make any such application and in effect invited the judge to deal with the matter on the material before him. To that extent I can see no grounds for allowing the evidence to be adduced at this stage. Some of the evidence was not available at the time of the hearing, but in my view permission to rely on that evidence should also be refused because it is irrelevant to the issues that arise on this appeal. The court is not hearing an appeal against the order of 21st July 2006, nor, for the reasons I have explained, is it concerned with an application for relief from the sanctions for which that order provided. The question to which the additional evidence is directed is whether it was appropriate for the court in the exercise of its discretion to dismiss the claim, but the judge's finding that there had been a clear breach of the order of 21st July has not been challenged and it follows that the sanction for which that order provided became effective. In those circumstances it is not appropriate for this court to hear argument about whether that was an appropriate response to the failure to comply with the order; it was the consequence for which the order itself provided. There is in my view much force in the defendants' complaint that by inviting the court to consider the matter from a broader perspective Marcan was effectively seeking to introduce by the back door and for the first time on the appeal an application for relief under rule 3.8. However, an application of that kind must be made on proper notice to the respondent who must be given an opportunity to file evidence in response. It cannot be made for the first time before this court.
- For these reasons, which differ in some respects from those of the judge, I consider that the order made in this case was correct. I would therefore dismiss the appeal.
Lord Justice Keene:
- I agree.
Lord Justice Pill:
- I also agree and add only a comment on the case of Raja v Van Hoogstraten  EWCA Civ 968;  4 All ER 793, which was cited to the court by the appellant and is considered in the judgment of Moore-Bick LJ. I gratefully adopt Moore-Bick LJ's recital of the facts at paragraphs 20 to 25 of his judgment.
- In the judgment of Chadwick LJ, with which May LJ and I agreed, the court declined to give effect to the unless order which was added to the order for disclosure of the defendant's assets on 27 November 2002. The order provided that, in default of compliance, the defence and counterclaim would be struck out. The judge struck them out on 10 December 2002.
- There is no reference in the judgment to relief being sought under CPR 3.8(1). My recollection is that the point was taken on behalf of Raja that, in the circumstances, the sanction contained in the unless order should take effect because the order was an unless order.
- The court, in rejecting that submission and allowing the appeal, had regard to the very unusual features present:
a) the criminal conviction against the defendant, which formed the basis for the striking out claim and played an important part in events leading to the unless order, had been quashed, on a date between the judge's order and the hearing in this court.
b) The freezing order, which led to the order for disclosure of assets and the unless order, was made without notice and the judge refused to hear a properly made application to set it aside.
c) There was real doubt, the court held, as to what the defendant was required to do to comply with the disclosure obligations and there was no firm foundation for findings of continued contempt.
d) The defendant was not present, through no fault of his, at some of the hearings below.
- The court took the view that in the circumstances, and having regard to the overriding objective, the sanction should not take effect. The court was in effect acting on its own initiative, as in Keen Phillips v Field  EWCA Civ 1524;  1 WLR 686
- The almost invariable effect of an unless order, as described by Moore-Bick LJ, with whose analysis I agree, was not doubted in Van Hoogstraten. I agree that the appeal should be dismissed.
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