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||Neutral Citation Number:  EWHC 2844 (QB)
||Case No: HQ0603045
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
MR JUSTICE FOSKETT
|| TOP LAYERS INTERIOR LTD
||- and -
||AZURE MARITIME HOLDINGS SA
Mr Peter Irvin (instructed by TLT Solicitors) for the Claimant/Respondent
Mr Luke Parsons QC and Mr Christopher Smith (instructed by Blake Lapthorn Tarlo Lyons Solicitors) for the Respondent/Appellant
Hearing date: 23 November 2007
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Foskett :
- There are before me two appeals launched by the Defendant in this action against orders made by Master Eyre, the first on 26 September and the second on 23 October. There are, strictly speaking, two defendants to the action, but the Second Defendant has played no direct part in the matters that fall to be considered and, for the convenience therefore, I will refer to the First Defendant, the defendant that is materially involved in the matters before me, as 'the Defendant'.
- Permission to appeal was granted in respect of both orders by Wyn Williams J on 6 November. Permission to appeal against the first order had been refused by Gray J on 1 November, that decision and the reasons for it being communicated to the Defendant's solicitors by a letter from the Appeals Office dated 2 November. The first order made by Master Eyre made provision for an interim costs order in favour of the Claimant in the sum of £25,000, that sum to be paid by 4pm on 6 November. The net effect of the position following the decision of Gray J was that there was no stay of execution in relation to that order pending the Defendant's proposed application for reconsideration of Gray J's decision and, accordingly, an application for a stay of execution was issued. That application was listed for twenty minutes before Wyn Williams J on 6 November. In fact he had longer than twenty minutes available to him and, with the agreement of both parties, he reconsidered the permission application although he had not, as he made clear to the parties, pre-read the papers other than to prepare for the stay application. As I have indicated, he did indeed grant permission, but it is right to record that it was in appropriately and understandably guarded terms given the time he had to digest the volume of documentation and to appraise the oral arguments of each side.
- Permission to appeal having been granted, it is common ground that my approach to the appeal is to consider the Master's decision by way of a review in accordance with the guidance of the Court of Appeal in Tanfern Ltd –v- Cameron-MacDonald and anr  1WLR 1311, 1317, paragraphs 30-33.
Summary of dispute
- A wholly disproportionate amount of time and cost has already been expended on what is in essence a simple case.
- The Claimant company engages, inter alia, in interior design. Its premises are based in Knightsbridge, London, although it has a workroom in South East London. One of its directors is Mr Alain Judd.
- The Defendant is a company registered in the British Virgin Islands. Its UK postal address is 'c/o The Pacific Group of Companies' at an address in Mayfair, London. As I understand it, the Defendant's sole asset is the motor yacht 'The Lady K II' and its contents. It acquired the yacht in December 2004 with a view to refurbishing it before offering it for charter. It would seem that the person with the controlling interest in the venture that is 'The Lady K II' is Mr Achilleas Kallakis.
- 'The Lady K II' is a luxury yacht capable of taking eighteen guests and is normally manned by a crew of twenty two. It was originally built in 1961 and became known as 'The Princess Tanya'. It was refurbished in 1995 and then again after it was acquired by the Defendant. A measure of the luxury afforded on board can be deduced from the charter rate being charged in 2005, namely, that of $250,000 per week plus expenses. The brochure prepared with photographs taken in May 2005 demonstrates elegance and opulence.
- It is not now in dispute that the Claimant company was instructed to act in connection with the soft furnishing refurbishment of 'The Lady K II'. I say 'now' because initially, within days of the letter before action being sent to the Defendant on the Claimant's behalf seeking recovery of the sum to which I will refer below, the Defendant issued proceedings against Mr Judd personally claiming £483,000 for alleged loss of charters arising from the breaches of contract now alleged in this action. It was subsequently accepted that those proceedings were misconceived and they have now been brought to an end.
- However, as I have indicated, there is now no issue but that an agreement was entered into concerning the internal refurbishment of 'The Lady K II'. This agreement arose at about the same time as the Claimant agreed to do some work at the private home of Mr and Mrs Kallakis. They live in or near to Knightsbridge and it may well be that this is how the parties came into contact initially. At all events, the Claimant agreed to produce and then arrange for the fitting of the interior soft furnishings for the yacht. The work involved the supply by the Claimant of its services, to be charged at £1000 per week, and the provision of materials on certain specified terms. Agreement was reached as to which corporate entity the invoices for the various works (including those for Mr and Mrs Kallakis personally) should be directed.
- According to a schedule prepared by the Defendant's advisers, invoices totalling £167,354.07 were received from the Claimant against which payments of £108,758.57 were made. Those invoices related both to the work the subject of this action and the work carried out for Mr and Mrs Kallakis personally. It seems common ground that in relation to the work carried out in respect of 'The Lady K II' the sum of £49,153.22 is outstanding, subject to the issues raised in these proceedings.
- The claim made by the Claimant in these proceedings is indeed for £49,153.22 plus interest. The Claim Form was originally issued in the Central London County Court.
- The case for the Defendant for not paying that sum is (a) that the quality of the work and materials supplied was sub-standard and (b) that time being of the essence of the contract, the interior soft furnishings were not finished in time. It is said that in consequence of the second of these factors it was impossible for the Defendant 'to obtain charters for the vessel for the 2005 season save for one three week period.' The 'season', according to the Defence, runs to 30 September, but its precise commencement date is less clear although it appears to start in May.
- In relation to the allegations concerning the quality of the work done (which, according to the Defendant's case, had to be to 'a faultless standard'), the following particulars were given in the pleadings:
"(a) bedcovers were incomplete;
(b) roman blinds were poorly constructed to the extent that
(i) four of them fell down;
(ii) despite instructions that they should be blackout blinds, they let light in;
(c) there was a shortfall in the number of cushions for the beds and sofas;
(d) the curtains in the main living room were insecurely hung and fell down;
(e) deckchair cushions were the wrong size and had exposed Velcro;
(f) upholstery in the main bedroom didn't fit properly;
(g) the Alcantara on the walls were not satisfactorily attached – the staples holding it up were visible.
Many items were not properly finished, were incomplete or were poorly made; and were not to the specification agreed; further particulars will be supplied upon disclosure and exchange of expert reports."
- The Defendant's case in relation to the time for completion of the work is that everything had to be complete to enable the yacht to be shown at the Genoa Yacht Charter Show in May 2005, the pleaded commencement date being 4 May. In essence it is said that this show is vital to the prospect of a successful charter season because it is the largest annual gathering of charter brokers in Europe. They are the people who then promote the benefits of a particular craft to prospective charterers.
- There is an unresolved issue about precisely when the Show started in 2005, but it is not in dispute that 'The Lady K II' was not on show at the Show. There is a major issue about whether time was 'of the essence' in the agreement between the Claimant and the Defendant and I will refer to that later. Suffice to say for present purposes, as I have already indicated, the Defendant's pleaded case in its Amended Defence and Counterclaim is that it was a fundamental term of the agreement that the work 'would be completed by no later than the beginning of May', the date 4 May being specified more than once in the pleadings.
- It is common ground that the works were actually completed on or about 14 May 2005.
- The consequences of the alleged sub-standard work and the alleged failure by the Claimant to complete the work by the specified date was (a) that a charterer (Mr Richard Johnson) decided, following an inspection of the yacht earlier in May, that he would not take up a charter due to commence for three weeks on 26 May and (b) that, with the exception of a three week charter in fact undertaken between 30 July and 20 August, no charters were obtained for the fifteen week period from 18 June to 30 September. Giving credit for the amount received for that three week charter, the total sum originally counterclaimed for the alleged breaches of contract was $3,000,000 (£1.932 million at the rates prevailing in May 2005).
- In other words, the Defendant's response to the Claimant's claim for a little under £50,000 was a Counterclaim for just short of £2,000,000.
The likely attitude of a court to such a pleaded scenario
- When a scenario such as that referred to above is revealed to a court, whether at a case management stage or at trial, the likely reaction will be the judicial equivalent of John McEnroe's famous expression 'You cannot be serious'. Whilst it is always important to guard against allowing an initial perception or reaction to obscure the possibility of a true case, the working assumption in this kind of situation will usually be that such a counterclaim is trumped up, particularly if, as pleaded, it appears speculative. The grossly inflated counterclaim in response to a modest claim is a well-known tactic. Where the counterclaim is assessed to be just, but only just, about arguable, the situation has been dealt with in a number of ways historically. Before the CPR and where it was either not possible to enter judgment on the claim or where it was, but where a stay of execution was considered unavoidable, the Court would often grant leave to defend on condition that the full (or a significant) amount of the claim would be paid into court to await the outcome of the trial. That approach was carried forward after the CPR with the additional power of being able to direct the payment into court of a sum to cover the costs of the party having to meet the counterclaim: see Olatawura –v- Abiloye  EWCA Civ 998.
- The CPR introduced a much enhanced 'hands on' case management role for the Court than had obtained hitherto. The ability to take a grip on a case irrespective of the wishes of the parties was given by the rules. Now, some eight years down the line, all practitioners will be familiar with the more robust approach frequently adopted. Firmness must, of course, be tempered with fairness, but the code set by the overriding objective is clear and now well understood.
- I make these general observations for two particular reasons in the context of this case:
i) Any litigator instructed by a client that the essential response to a modest claim is a very large counterclaim will need to have in mind the kind of reaction to which I referred in paragraph 20.
ii) Any such litigator will also have to have in mind that anything done (or not done) in the preparatory stages of such a case that adds fuel to the initial suspicion is likely to produce a robust use of the court's case management powers at some stage.
I should say that I have no reason to suppose that those advising and representing the Defendant have not been mindful of those factors. They can, of course, only act within the limits of what is achievable and on the basis of their instructions.
The case management process in this case
- It needs to be recorded that, irrespective of any intimation of the claim made in earlier correspondence (in fact done by letter dated 25 August 2005), the Defendant had notice of the nature and quantum of the Claimant's claim in the context of the proposed proceedings in January 2006 when the Claimant's solicitors sent to Messrs Collyer-Bristow, the solicitors then acting for the Defendant, a copy of the Claim Form and the Particulars of Claim. That did not constitute formal service because the sealed copies of those two documents were awaited from the court. By the time the Claimant was ready to serve the documents, Messrs Collyer-Bristow indicated that they no longer had instructions to accept service of the proceedings and, accordingly, the Claimant's solicitors made arrangements for service at the Defendant's registered office in the British Virgin Islands. Following service, Messrs Collyer-Bristow were instructed to deal with service of the Defence which they effected on the Defendant's behalf on or about 20 June 2006. It was in that Defence that the counterclaim for £1.932 million was intimated, the basis being along the lines set out in paragraph 12 -17 above. Whilst the intention to pursue such a response to the claim will doubtless have been formed well before that date (and preparations to substantiate it already well advanced), it was at that moment that the counterclaim was injected formally into the court's processes. Although Messrs Collyer-Bristow were replaced as the Defendant's solicitors by Messrs Tarlo Lyons (later to become Messrs Blake Lapthorn Tarlo Lyons) on 10 October 2006, the clock relating to the preparation of the Defendant's case in connection with this very substantial counterclaim had plainly been ticking for some while.
- Notwithstanding the change of solicitor, the Defendant was able to serve an Amended Defence and Counterclaim on 3 November 2006 and to intimate the suggestion that the Defendant would wish to adduce expert evidence in two areas, namely, yacht brokerage/chartering of yachts and quality of soft furnishings, something which, incidentally, the Claimant's solicitors agreed subsequently although suggesting a single joint expert to save costs. Lists of documents were exchanged on 9 November.
- As I understand it, a Case Management Conference was held by Deputy Master Hoffmann on 23 November 2006, but it was not until the early part of 2007 that the various hearings that have resulted in the matter coming before me took place. It is, however, worth observing that the Deputy Master, I understand, directed that witness statements of witnesses of fact should be exchanged on or before 15 February.
- Before taking the chronology into the early part of 2007, the following should be noted;
i) On 1 December 2006 the Claimant issued and served an application for security for costs against the Defendant in relation to its counterclaim (or, more accurately, its part 20 claim).
ii) In his witness statement in support of that application, the Claimant's solicitor, Mr John Dickinson, characterised the counterclaim as 'entirely spurious'.
iii) In the Amended Reply to the Amended Defence and Counterclaim drafted by Mr Peter Irvin, who acts for the Claimant, the counterclaim was characterised as 'an inflated and/or spurious and unmeritorious claim, and an abuse of process, designed to deflect an unanswerable claim for fees by Claimant and/or to make the Claimant a scapegoat for a disastrous and loss making commercial blunder by the First Defendant and Mr Kallakis.'
- Whatever may be said about the language employed, there can be no doubt that the Claimant's advisers were beginning to invite the kind of scepticism to the counterclaim that I indicated in paragraph 20 above.
- The Claimant's application for security for costs was listed for hearing before Master Eyre on 8 February. Indeed, as I understand it, it was considered in full that day, but judgment was reserved. In the meantime, on 2 February, the Claimant had issued and served an application for specific disclosure. The documents sought included documents relating to the remedial work carried out to remedy the alleged defects, documents relating to the works carried out (by others) in Genoa from 15 March 2005 to the end of May 2005 and documents surrounding Mr Johnson's alleged decision not to proceed with the charter (see paragraph 17 above).
- On 21 February Master Eyre e-mailed both Counsel with some preliminary comments that suggested that he was minded to reject Claimant's application for security for costs, but which indicated that irrespective of that application the Defendant was likely to be permitted to pursue the counterclaim only if it served (i) an Amended answer to the Claimant's Request for Further Information such as to give proper particulars of the factual case that it would seek to advance, (ii) a properly detailed Schedule of Damage, (iii) an expert report supporting the allegations in the counterclaim and (iv) provided any outstanding disclosure in respect of the counterclaim. He indicated that there was 'at the very least a possibility that, pending compliance' with those requirements the counterclaim would be stayed. This indicates that, not surprisingly, he was becoming receptive to the invitation to scepticism to which I have referred. More importantly, if the expression is not inapt in the context of this case, it represented something of a warning shot across the Defendant's bows.
- Various statements were served thereafter on behalf of both parties (including a short statement from Mr Alex Williams stating that he had met Mr Johnson on the yacht at the beginning of May 2005). Mr Williams is a director of Atlas Management Corporation Ltd which is apparently a management company for a number of companies including the Defendant. The address of Atlas is the same as 'The Pacific Group of Companies'. Atlas was the corporate vehicle by which 'The Lady K II' was managed.
- Doubtless acting on the basis of the Master's e-mail, the Claimant issued an application seeking a stay of the counterclaim. On 16 March the matter came back before Master Eyre who directed that by 20 April the Defendant should serve Amended answers to the Claimant's Request for Further Information such as to give proper details of the Defendant's factual contentions and a properly detailed Schedule of Damage. Furthermore, he directed that the Defendant should give any remaining disclosure in respect of the counterclaim and that by no later than 4 May the Defendant should serve any expert report on which reliance was to be placed in respect of the counterclaim. This order was very much along the lines foreshadowed in the e-mail he sent to the parties on 21 February.
- On 3 May the Defendant served a further disclosure list, Amended Replies to the Request for Further Information and a Schedule of Damage. No expert report was served. On the same day the Second Defendant served an application for security for costs against the Claimant in relation to the relatively small claim made by the Claimant concerning the works done at the private residence of Mr and Mrs Kallakis. On 25 May Master Eyre heard the Claimant's application for specific disclosure and the stay, together with the Second Defendant's application for security.
- On 30 May Master Eyre gave his written reasons for rulings made on the various applications before him. He rejected the Claimant's application for security for costs against the Defendant and rejected the Second Defendant's application for security for costs against the Claimant. His reasoning in relation to specific disclosure and the application to stay the counterclaim was expressed as follows:
"(2) Specific disclosure:
(a) The First Defendant has under protest and without concession of any kind consented to give specific disclosure in respect of:
(i) The yacht's deck-log for the period June-July 2005.
(ii) The Invoice/Booking-form for the Genoa Boat Show 2005.
(iii) Documents relating to remedial work to interior design-defects.
(b) That leaves for decision the application in relation to the charter by Mr. Johnson. So far, only 2 documents relating to that charter have been disclosed, yet the First Defendant strenuously opposes the idea that it ought to give further disclosure in that respect, even though the evidence now suggests that Mr. Johnson can no longer be found, and possibly never will be. Even more worryingly, the First Defendant's solicitor has spurned the Claimant's request for information as to Mr. Johnson's whereabouts, which must give rise to the suspicion that Mr. Johnson never existed. It follows that there must be an order for further disclosure in this respect.
(c) The application is therefore granted.
(3) Stay of the Counterclaim:
(a) The First Defendant's Counterclaim is for some £1,800,000 in damages, and represents procedurally the overwhelming majority of the litigation.
(b) Putting aside the loss of the charter by Mr. Johnson, the Counterclaim is for the loss of an opportunity, a determination of which necessarily involves questions of fact and opinion.
(c) The questions of fact include for example the question asked by the Claimant, namely whether the yacht really was available for chartering during the whole of the period alleged, or whether in truth it was laid up for repairs during part of that period. The questions of opinion include whether there really was such an opportunity as the First Defendant contends and whether what the First Defendant says about how that opportunity came to be lost is correct.
(d) On the 16th March 2007, the First Defendant was ordered to serve:
(i) Properly-detailed answers to the Claimant's Request for Further Information. The answers served are only too plainly utterly inadequate, examples being as follows. Answer 1 itself is objectionable, amounting to a pregnant negative. Answer 2 is also objectionable as suggesting that evidence will be called of a non-admission. Answer 5(a) is objectionable as pretending to answer so as to give no particulars of any kind and Answer 5(b) is a refusal to state facts on the around that to do so would be to give evidence. Answer 10(a) consists overwhelmingly of opinion, yet the First Defendant rejects the need to call expert evidence. Answer 10(b) refers to the Schedule of Damage (see below).
(ii) A properly-detailed Schedule of Damage. The document served is a travesty: it is entirely hypothetical, and makes no attempt whatever to relate the amount of compensation counterclaimed to any solid information by reference to which the reality of that amount could possibly be tested.
(iii) Any expert evidence on which reliance is placed in respect of the Counterclaim. That part of the order went too far: as was explained at a previous hearing, all that was envisaged was a properly-detailed report from a witness qualified to give an opinion that the contentions in the Counterclaim were well-founded. However, the First Defendant has simply ignored this part of the order.
(e) Counsel for the First Defendant insists both in oral and in written argument that the Court made the order on the basis of a misunderstanding, and is making demands on the First Defendant that are unfair and harsh; that the approach taken by the later is perfectly proper; and that a stay would be completely unwarranted.
(f) However, regardless of what may be said in that way:
(i) As already stated, the Counterclaim is now by far the largest part of this litigation.
(ii) For the reasons given above, there is much for the First Defendant to do by way of preparation to make the Counterclaim effective and fairly-presented.
(iii) There is nothing in the least unusual about the Court's requirements.
(iv) The First Defendant has not obeyed the order directing it in that respect.
(g) The First Defendant will accordingly be given an extension of time in which to comply with the order (with an adjustment as indicated in relation to expert evidence), and the Claimant's application will meanwhile be granted."
- Against that background he made an order directing the Defendant to give disclosure by a second list of all disclosable documents not on its first list. He also directed the Defendant to serve and then or thereafter file a properly detailed witness statement explaining in relation to any of the documents set out in the preamble to the order (namely, the yacht's deck-log for the period June-July 2005, the invoice/booking form for the Genoa Show, documents relating to remedial work carried out in relation to the interior design defects and any correspondence with Mr Johnson) that it says it cannot disclose (a) whether those documents do or do not exist and, in relation to those which have ceased to exist, stating precisely the circumstances in which and the dates on which they ceased to exist and (b) stating precisely what efforts have been made to find them, when those efforts were made and their outcome.
- In relation to the stay of the counterclaim, for the reasons he gave as set out above, the Master directed that the counterclaim was to be stayed forthwith pending further order though without prejudice to the requirement that by 18 July the Defendant was to comply with the requirement of his order of 16 March as set in paragraph 30 above. He also directed that the Defendant by the same date 'serve and then or thereafter file a properly detailed report from a witness qualified to give an opinion that the contentions in the counterclaim are well-founded.'
- It is quite plain that the Master had considerable misgivings about the counterclaim. As I have already observed, those misgivings had clearly been taking shape by the time of his preliminary comments in February and that must have been obvious to anyone who read those comments. Even leaving aside the natural reaction to such a counterclaim (see paragraph 20 above), it is hardly surprising that his scepticism had increased by the time the matter came before him again in May since a letter written by the Claimant's solicitor to Mr Johnson at the address at the top of the two letters from him (see paragraph 47 below) was returned as 'Not known at that address'. It is, of course, true that there was by then a statement from Mr Williams who, as I have indicated, effectively worked for the Defendant, saying that he had met Mr Johnson in early May 2005; but that is no real substitute for a solicitor being able to say that he had spoken to, or had had some written communication with, someone who at that stage (and ever since the proceedings taken against Mr Judd personally) was a highly material witness. That had not taken place by then.
- The Master made criticisms of other features of the Defendant's conduct of the litigation when the foregoing reasons were given on 30 May. There is little doubt that the Defendant's advisers did not think that those criticisms were justified, but nonetheless the order was made and there was no appeal. If the Defendant had not before then grasped the fact that a court would be looking on a counterclaim of this sort (particularly with the suspicious features emerging) with considerable reserve, it should have done so henceforth.
- At all events, the orders that the Master made on 30 May, for the reasons he gave, were as indicated in paragraph 33 above.
- The matter came back before the Master on three separate days (25 July, 27 July and 26 September) when the issue of whether the Defendant had complied with these orders was debated and the question of the sustainability of the 'time of the essence' allegation was considered. The net effect of the Master's decision was that there had not been sufficient compliance with the orders and that the 'time of the essence' contention was unsustainable. In consequence he struck out those parts of the Defendant's pleadings that arose from that contention. He gave the Defendant until 9 October to comply with the order for specific disclosure of the deck-log and to give further and better disclosure of any internal documentation that came into existence when the Defendant realised that the Claimant had let it down and any correspondence between January and mid-May 2005 even though it may have been on the Claimant's list. He gave two other directions that are now irrelevant. He directed that if the Defendant should default in complying with those directions, the Defence and Counterclaim should be struck out without the need for any further order, with judgment for the Claimant.
- I will refer to the reasons given by the Master for reaching the decision on the 'time of the essence' issue below. In this appeal it is said that he was wrong to reach that conclusion.
- On 9 October the Defendant's solicitors served a witness statement dealing with the matters arising from the further directions to which I referred in paragraph 38 above. Prior thereto the Defendant had issued an application seeking an order that the issue of compliance with those orders be determined before the Claimant could enter judgment. That application was in the event considered by the Master on 23 October. He decided that there had not been substantive compliance and dismissed the Defendant's application. The effect of the dismissal of that application is to enable the Claimant to enter judgment. It is argued by the Defendant in this appeal that he was wrong to reach that conclusion.
The Master's reasons for the decisions made
- I will set out first of all the Master's reasons for arriving at the decision that he did on 26 September and 23 October. It will then be necessary to say a little more about some of the material he referred to in that reasoning. His express reasoning was as follows:
"3. The First Defendant has since purported to comply with the Court's orders as follows:
(1) ANSWERS: On the 18th July 2007, the First Defendant served Amended Answers, but with Answer 10 (a) yet again consisting overwhelmingly of opinion.
(2) SCHEDULE: On the same date, the First Defendant served an Amended Schedule, showing a reduction in the amount counterclaimed from some £1.9 million to perhaps £0.7 million, though without any accompanying explanation for what caused it first to claim so high a figure, then to reduce it.
(3) DISCLOSURE: On 20th June 2007, the First Defendant served a witness-statement and list of documents. However:
(a) As regards the 4 categories for specific disclosure:
(i) Deck-log: The witness-statement (Paragraphs 7 – 14) makes it obvious both that the previous Master of the vessel is the individual most likely to have the deck-log or at least know where it is and that the First Defendant had made no attempt whatever to recover it from him or even to enquire after its whereabouts.
(ii) Invoice/booking-form for Genoa Boat-show 2005: This has not been found, though a copy could almost certainly be obtained from the organisers of the show. Again, the witness-statement (Paragraph 16) makes it obvious that no attempt had been made to obtain such a copy or even to enquire whether one could be provided.
(iii) Remedial work: The witness-statement confirms that the works were such that no documents ever came into existence.
(iv) Mr Johnson: The witness-statements state simply that no further documents have ever existed.
(b) As regards disclosure as a whole, the First Defendant's is glaringly incomplete: there is for example no mention of:
(i) Any of the internal documents that must have come into existence when the First Defendant – so it says - realised that the Claimant had let it down.
(ii) Any of the old correspondence between these parties in the crucial period from January to mid-May 2005, even though it is in the Claimant's list.
(4) EXPERT: On the 12th July 2007 the First Defendant obtained a report from a yacht-broker of 6 years experience, a Mr. Sibley. However, and quite apart from anything else (including his lack of experience):
(a) He is not independent of the First Defendant or even – and this is more important – of the dispute itself: his company was the broker retained by the First Defendant in January 2005 to obtain charters for this very vessel.
(b) His report is not only a slovenly mixture of opinion and fact, but is also yet another travesty:
(i) The report is devoid of detail or reasoned consideration, so as to be an expert report in name only --- the examples of this are far too numerous to list.
(ii) The "finding" (sic) at paragraph 17.2, which amounts to no less than a ruling on liability, is:
(a) Far outside the range of what is permissible evidence from this witness;
(b) Grotesquely partisan; and
(c) Equally blatantly a conclusion reached without even the most in expert attempt to investigate the true state of affairs.
4. To a most limited extent, the First Defendant has complied with the order; and it is right to say that, since the occasions mentioned above, it has attempted to improve its compliance, for example by writing to the previous Master of the vessel.
5. However, it remains the case that in at least the respects mentioned the First Defendant's compliance falls far short of what was required.
6. But that is not all: it is an important part of the First Defendant's Counterclaim that:
(1) The Claimant was in fundamental breach of the contract by failing to complete the works in time for the yacht-show starting on 4th May 2005.
(2) Mr. Johnson's willingness to charter the vessel was subject to his viewing the vessel at the yacht-show and being satisfied with its condition.
(1) It appears from an e-mail message from the show-organisers put in evidence by the First Defendant that the show started, not on the 4th, but on the 2nd May, and ended on the 7th May;
(2) The correspondence disclosed by the Claimant shows that by the 10th May --- or in other words 3 days after the show was already over --- the First Defendant had voiced not a single complaint about late completion, and indeed stated in terms that it would regard completion by the 14th May as acceptable.
8. The First Defendant has not sought to explain either discrepancy, despite having had every opportunity to do so.
9. Counsel for the First Defendant insists that:
(1) The order made at the hearing on 30th May 2007 was that, provided the First Defendant complied with its specific obligations, the stay would be set aside. However, the order is clearly to the contrary, and Counsel's contention is quite wrong.
(2) The First Defendant has fully complied with its specific obligations. For the reasons given, that contention is equally wrong.
10. It follows that the allegations in the Defence that time was made of the essence are baseless, and the Counterclaim, so far as it alleges breach by the Claimant of such an obligation, can have no real prospect of success, both being apparently no more than a mischievous fiction.
11. Accordingly, and regardless of any stay, the Claimant is in that respect entitled to striking-out and summary judgment.
12. It follows, too that in relation to the rest of the Counterclaim, the Claimant must at the very least be entitled to an order continuing the stay until the First Defendant in a specified time:
(1) Corrects the deficiencies in its compliance; and
(2) Abides by any terms that it may be appropriate to impose."
- In relation to the order of 23 October, the Master did not give his reasons in the way that he had done on previous occasions. However, it is quite plain from the interchanges shown on the transcript (and indeed from his reasons for refusing permission to appeal) that he regarded the Defendant's compliance with his order as 'purported' or 'nominal' compliance. He described it during the argument as 'compliance so thin that there is no substance left in the … Defendant's case.'
'Time of the essence' issue
- Although on a true analysis I think that the reasoning of the Master concerning the failure to comply with his orders had a bearing on his decision to strike out the 'time of the essence' case, I will deal with this as a discrete issue. I will deal with it first because it goes to the heart of the bulk of the alleged counterclaim and, of course, to the Defence also. Mr Parsons' argument concerning this issue was relatively brief. He drew attention to the fact that the Master's decision in this respect was essentially a summary judgment decision for which no application had been made by the Claimant. He does accept, however, that the court is entitled to strike out a claim or counterclaim of its own initiative if it feels it should do so subject, of course, to the issue of fairness. Having made that general point, his submissions can be summarised in this way:
i) Whether time was of the essence is a question concerning the terms of the contract which are to be deduced from the oral communications of the parties in September 2004. He says that there is documentary support for the proposition that the combined intention of the parties was to achieve completion of the work before the beginning of the Genoa Show. He says that the letter of 4 February, to which I will refer in more detail below, is at least evidence that time was of the essence, or made of the essence, and that he is entitled to call oral evidence to prove that it was sent, there being an issue about that.
ii) In relation to the circumstances and consequences of the alleged breach of contract (i.e. in the period April – July 2005) he says there is oral evidence available to support the proposition that the only reason the yacht missed the show was the Claimant's failure to complete the works and that not merely was one fixture lost (Mr Johnson), but there was a lost opportunity of obtaining other charters.
- I should briefly put the facts in context. It does not appear to be disputed that the Claimant sent a letter to Mr Williams either on 5 January 2005 or 28 January 2005 – it is not entirely clear because both dates appear at the top of the letter although the contents of the letter would seem to suggest that it was actually dated 5 January. At all events, it set out a series of dates or periods by which certain events within an overall schedule designed to secure completion 'by May' were to be achieved. It did not contain all the terms of the agreement because there is no reference, for example, to the £1,000 per week consultancy fee. Even if accepted precisely in the terms in which it was expressed, it has not been suggested (nor, in my view, could it be) that the letter made 'time of the essence'. It certainly spoke in terms of completion by May, albeit dependent on certain other targets being met in the meantime.
- The Defendant alleges that on 4 February Mr Williams wrote to Mr Judd a letter in the following terms:
"I trust all is well. You will be aware that the Princess Tanya (Lady K II) is a charter vessel and as such it will be extremely expensive for us if you do not complete your works as we will lose charter revenue. Moreover the majority of bookings for the season will be made at the Genoa Boat Show which starts May 4 2005. We already have one booking where charterers will be looking at the ship there to confirm. As such you should only undertake this work if you can be sure that you can complete the works in time. I understand from your assurances that this will be no problem at all but hope you understand where I am coming from.
I look forward to completing this project."
- There are some odd features about that letter. It was prompted, according to Mr Williams' brief witness statement, by having received the letter from Mr Judd dated 5 January. However, the letter of 4 February does not mention that letter at all and equally it was not addressed to Top Layer Interiors Ltd even though Mr Judd's letter was written on the company's headed notepaper. Mr Williams says in his witness statement that the 'one booking' referred to in his letter was, to the best of his recollection, Mr Johnson's booking. I will say a little about Mr Johnson and the communications from him in paragraph 47 below. Whilst there were subsequent letters and e-mail exchanges in February and March between Mr Williams and Mr Judd or his fellow director Mr Coppin (all of which, so far as I can judge, being addressed to and from them at Top Layer rather than in a personal capacity), none referred to the letter of 4 February. The letter was relied upon in the aborted personal claim against Mr Judd and Mr Judd says that he had never seen any such letter until disclosure in that action.
- I will return to the significance of the letter of 4 February shortly, but I should mention the involvement of Mr Johnson because it impinges on both this and another feature of the background. Two letters have been disclosed as apparently coming from Mr Richard Johnson at the address 1316 Philadelphia Pike, Wilmington DE, 19809-1855, with certain telephone numbers being identified at the top of the notepaper. The first letter was dated 29 January 2005 and confirmed that 'we' will be pleased to charter the yacht from May 26 until June 17. Although the word 'we' is used in relation to the charter, there is no company name at the top of the notepaper. However, the letter confirms that since the ship is 'currently undergoing extensive refits of the interior' the agreement to charter it would be 'subject to viewing the final interior work in Genoa at the Boat Show at the beginning of May.' No reply from Mr Williams, or anyone else on behalf of the Defendant, has been disclosed. The next letter, also apparently written from the same address, was dated 16 May 2005. It refers to an undated inspection of the yacht and draws attention to what are said to be unfinished aspects of the 'state of the interior' (which are set out in a list) which has led them to cancel their charter. Again, there is no letter of reply, say, by way of apology or explanation from Mr Williams or anyone on behalf of the Defendants concerning this. Mr Williams says in his witness statement that Mr Johnson had inspected the vessel 'at the beginning of May' and that he (Mr Williams) subsequently received the letter dated 16 May. One assumes that if Mr Johnson had been sufficiently disappointed with what he saw he would have made that known to Mr Williams at the time (Mr Williams saying that he met Mr Johnson on the boat) and that this would have been something passed on to Mr Judd. However, in none of the communications to which I will refer below in paragraph 50 is there any reference to Mr Johnson or the fact that a charter had been lost as a result of defective interior work.
- For a number of reasons, including the fact that there is no reference in the deck-log to the fact that Mr Johnson has carried out an inspection of the vessel in early May 2005, the Claimant suggests that the inevitable inference is that the 'Johnson charter' was not genuine or that if it was Mr Johnson's failure to proceed with the charter had nothing to do with the alleged minor defects complained of by the Defendant. The Claimant draws attention to the fact that a group of merchant bankers, who booked the vessel for the period 20 – 23 May (according to Mr Williams, this arrangement having been made on 18 May) were not similarly dissuaded. The Claimant also makes the strong assertion that the letter of 4 February was fabricated to make the claim against Mr Judd personally. If, of course, the Johnson correspondence was fictitious that might lend credence to such a suggestion and it is not impossible to see the kind of matters that might be advanced about the Johnson letters. However, whatever suspicions there might be, it would be difficult to reach a firm conclusion at this stage of the proceedings without hearing evidence on the issue.
- The point argued by Mr Irvin, and taken up by the Master, was that documents eventually disclosed showed that the Genoa Yacht Charter Show commenced on 2 May, not 4 May. Given that 4 May is the date given in the letter of 4 February that might, it is argued, also lend further support to the suggestion that the letter of 4 February was fabricated. However, more importantly for present purposes, it undermines completely the pleaded allegation against the Claimant that the work should have been completed by 4 May. As Gray J observed when rejecting the application for permission to appeal on the papers, the Master 'was plainly right that the [counterclaim] could not in practice succeed unless it could [be proved] that it was a condition of the contract that the work on the yacht would be completed by [4 May 2005].' Yet there is evidence from a completely independent source suggesting that 4 May would have been too late anyway. Given the perfectly natural scepticism about this counterclaim that had been developing in the Master's mind over several months of hearings in this case, it is hardly surprising that he questioned why this discrepancy has not been explained or resolved by the time he was invited to consider the matter.
- The Master also drew attention to the e-mail exchanges that took place on 10 May which stated in terms that 'slippage to Saturday 14 May 2005 on completion of the works ... is acceptable, PROVIDED that the bulk of the works are completed by Friday evening.' 10 May was already three days after the show had finished (according to the independent source to which I have referred) and there is no written complaint about the fact that the works had not been completed by 2 (or indeed 4) May either in these e-mail communications on 10 May or earlier. There are a number of e-mails from the Claimant's side chasing interim payments and referring to the involvement of Mr and Mrs Kallakis, but nothing from the Defendant indicating a complaint about late completion or its consequences. I have already observed that no direct or indirect reference is made to the lost Johnson charter because of deficiencies in the work done.
- Again, as the Master observed, this surprising state of affairs remained unexplained. Whilst Mr Parsons would, I think, argue that explanations might come when exchange of witness statements takes place, I do not think that that is a satisfactory position to take when a court is displaying considerable scepticism about what is being put forward. The safer course is to deploy all the evidence at that stage so that the strength (if it be so) of the Defendant's position could be demonstrated. There is every reason why the work in that regard should have been well advanced by then: at the very least, following the Case Management Conference in November 2006, the parties were initially set on course for exchanging witness evidence by February 2007. Furthermore, one cannot help but observe that plainly money is no object in terms of getting together the Defendant's case. So why not provide that case all together, place it before a sceptical court and say in effect 'whatever your suspicions, here is the evidence that demonstrates the strength of our case, you should not stop this case going forward'?
- The Master concluded that the 'time of the essence' case sought to be advanced by the Defendant was 'baseless' and that the counterclaim based on a breach of such an obligation had 'no real prospect of success'. He characterised both aspects of this case as 'apparently no more than a mischievous fiction.'
- This is a strong conclusion and a robust response to the material before him. Was it outside the ambit of reasonable responses on that material? The answer, in my judgment, is 'no'. Others might have let the counterclaim proceed on the strictest and most stringent of conditions, but on any view the Defendant's case hung together, if at all, by the loosest of threads and there can be no criticism of a decision in those circumstances that 'enough is enough'. It is a decision entirely in accordance with the overriding objective.
- I have, of course, had well in mind the strictures in cases such as Swain –v-Hillman  1 A.E.R. 91, Three Rivers D C –v- Bank of England (No 3)  2 A.E.R. 513 and Sharpe –v- Addison  EWCA Civ 1189 about not dealing with a strike out issue on the basis of a mini-trial on the documents. However, this is essentially a simple case and I can see no difficulty in arriving at a sufficiently informed view of the merits of the Defence and Counterclaim on the material available. I do not consider, therefore, that the Master trespassed beyond the limits of the permissible in this connection.
Non-compliance with the orders
- As I have already indicated, I think that the true analysis of the Master's reasoning requires a recognition that the Defendant's approach to compliance with the orders made was done in such a way as to reinforce the natural scepticism that would arise in such a case. Given the starting point (see paragraph 20 above), this is, to my mind, perfectly understandable and despite Mr Parson's attractively presented and well-balanced submissions I am not persuaded that the Master's approach can be criticised. Gray J, who had the benefit of Mr Parsons' written Skeleton Argument, was of the same view.
- It is right to say that in some instances a case can be made for literal compliance with the orders made. For example, the provision of Mr Sibley's report/statement probably did literally comply with an order requiring the service of a 'properly detailed report from a witness qualified to give an opinion that the contentions in the counterclaim are well founded.' Mr Parsons submits that as a yacht-broker Mr Sibley is 'properly qualified' to give an opinion on the importance of the Genoa Show and the charters the yacht could have attracted if part of the show. I think that is probably correct. Mr Parsons says that the order did not specify that the witness had to be 'independent' and that by criticising Mr Sibley's apparent lack of independence the Master was going beyond the terms of his order.
- For my part, I would not wish to say anything in a judgment at this stage that might cast doubt on the integrity and professionalism of someone who has not had a chance to answer criticisms made. To that extent, I might have used less strident language than that used by the Master. However, that is really irrelevant for the purposes of the present exercise: the Master formed a perfectly tenable view of the report and I cannot disagree with the substance of what he concluded. I will restrict myself to saying that there are plain deficiencies in the report prepared and that there are grounds for questioning the authority which it would command if tested in court. In the particular context of this highly suspicious counterclaim, it does not, in my view, carry the prima facie authority that is needed to dispel adequately those suspicions. Since its value had to judged in that context it was, as Gray J concluded, 'worthless' even if its provision complied strictly with the Master's order.
- As to the other matters mentioned by the Master in his reasons (see paragraph 40 above), the dramatic downsizing of the counterclaim, whilst not of itself a matter necessarily for criticism, is plainly something that invites the question as to why the claim had originally been pitched at such a high level originally. This reinforced the impression that it had been inflated at the outset.
- As to the answer to the request for further information, it is necessary to set out the request and the answer ultimately given in the amended version. They are as follows:
Stating all facts and matters relied upon in support of the allegation that the First Defendant would have been able to obtain charters during the 2005 season at the rate of US$250,000.00 per week, identifying in particular all potential charterers, and in respect of each potential charter relied upon the precise reasons given for not chartering the vessel, producing copies of all documents relating to failed attempts to obtain charters during the relevant period.
The facts and matters relied upon in support of the allegation that the First Defendant would have been able to obtain charters during the 2005 season (which in broad terms means between May and September 2005) at the rate of US$250,000 per week, are as follows.
Obtaining charters, and
The (money) rate in respect of each per week
(a) Obtaining Charters
1. The vessel was "seaworthy", fully certified and licensed and equipped to undertake charter business in the period covered by the claim. If the vessel had been shown at the Genoa Boat Charter Show in May 2005 it would have secured charters for the 2005 season. The season lasts between May and September of any respective year – hence May and September 2005. The said Show is unique and is the primary event for showing vessels with a view to obtaining charter. The only reason why the vessel did not attend the said show in May 2005 was because the Claimant had not timeously completed the works it was contractually obliged to do. On the Claimant's own case it did not complete the works until the 14th of May 2005 – after the show was completed. The Defendants' case is that patently, as at the 4th of May 2005, the works the Claimant was contracted to undertake had not been completed and the appearance of the vessel was akin to an upholsterers workshop. The "potential charterers" are the brokers and individuals/entities that attended at the said Show with a view to entering into charters with owners of vessels such as Lady K II. This is the major purpose of the attendance of such individuals at the show, and was the sole purpose of the vessel's intended presence at the Show. The vessel was attractive at the time, known to brokers under its previous name of Princess Tanya, and was sufficiently attractive to obtain likely charters in the sum of US$250,000 per week throughout the charter season – May to September 2005 inclusive. The market is extremely competitive and it is essential to maximise charter opportunities that vessels shown at the Show are in pristine condition. This vessel could not have been entered for the Show in such condition without the Claimant's works being completed. In the event, one charter for the period 20th – 23rd May 2005 over the Monaco Grand Prix was obtained in the sum of £107,432 and, as a result of efforts made by Titan Hyde and Torrance, one charter was secured for the 2005 season for a three week period from the 30th July 2005 until the 20th August 2005 at the rate of US$899,985 excluding expenses. There are no documents relating to "failed attempts to obtain charters" other than the promotional material deployed by the brokers retained on behalf of the First Defendant and various website advertisements (which have already been disclosed).
For the avoidance of doubt, the First Defendant also relies upon the fact that one intended charter for a 3 week period on behalf of a Mr Richard Johnson was also lost when Mr Johnson inspected the vessel and was dissatisfied with the state of the same. The said Richard Johnson had intimated an intention to charter the vessel for a 3 week period from the 26th May until the 17th June 2005 at a weekly rate of US$250,000 excluding expenses, starting point Monaco. The foregoing was subject to viewing the work that was being carried out to the vessel by the Claimant at the said Genoa Yacht Charter Show.
The appropriate rate of charter for the vessel in the event of the Claimant's works having been completed satisfactorily is USD$250,000 per week excluding all expenses – which are paid separately. The counterclaim relates only to the loss of charter, and not the expenses. The First Defendant contends that it loss of opportunity to obtain charter for the vessel is significant, in particular it would have obtained charter for at least 10 weeks. Accordingly its loss of chance should not be discounted. Alternatively (although, as a matter of law, the First Defendant is not required to demonstrate its case to this standard) on the balance of probabilities it would have obtained such charter for 10 weeks. Thus the claim is quantified as follows:
Charter rate – USD $250,000 per week
Charter period – equivalent to the 2005 season – 10 weeks at USD$250,000 = USD$2,500,000
Less credit USD$899,985
Less one charter at rate of £107,432 for period 20th – 23rd May 2005 inclusive (dollar equivalent at that time USD$196,402 – applying a 4 day average interbank exchange rate of 1.82815
Grand total US$1,403,613"
- The Master characterised this as 'yet again consisting overwhelmingly of opinion.' Gray J expressed the view that it amounts to nothing more than bare assertion and does not found sufficiently a loss of chance claim. Gray J also said that it did not comply with the earlier order which required the Defendant to give 'proper details of the … factual contentions' relied upon. I respectfully agree with that analysis.
- In relation to disclosure, Mr Parson's principal argument is that disclosure requires a party simply to state whether it has or has had documents in its possession, not to produce for inspection documents that the party no longer has. He says that to comply with an order for disclosure that is all that has to be done; it is not necessary to spell out what attempts have been made to find documents that would otherwise be expected to be in a party's possession.
- Mr Parsons makes that submission in relation to both orders the subject of this appeal. He also submits that either there has been compliance or there has not. If there has, even if it is, as it were, simply to the letter of the order, then that should be sufficient to prevent a striking out order on the basis of a failure to comply.
- I think that these submissions might have some force in a different case from this one. As must be plain from what I have said so far in this judgment, complying just to the letter and no more, particularly if it takes more than one attempt to achieve it, will never have assisted in dispelling the inevitable suspicions about the Defendant's case. I think Mr Parsons is probably right that by 23 October the Defendant had complied strictly with what the Master had ordered. Indeed the Master himself said that there had been 'nominal' or 'purported' compliance. But, in his view, it was not sufficient to prevent the Claimant entering judgment.
- In my view, he was entitled to reach that decision. Even if I had thought that he was not entitled to reach that conclusion, I would have said in any event, as I think Master Eyre himself was saying, that the manner in which the 'compliance' had been achieved added force to his overall view that the Defence and Counterclaim had no merit. To that extent, the decision to strike out on summary judgment grounds was reinforced.
- For all the reasons I have endeavoured to give, I think that the Master was entirely justified in reaching the conclusion he did in the particular circumstances of this case and making the orders that he did. It follows that the appeals against both orders are dismissed.
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