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||Neutral Citation Number:  EWHC 1562 (Ch)
||Case Nos: 3378 and 3379 of 2011
IN THE HIGH COURT OF JUSTICE
Royal Courts of Justice
Fetter Lane, London, EC4A 1NL
B e f o r e :
MR JUSTICE HENDERSON
|| IN THE MATTER OF ATRIUM TRAINING SERVICES LIMITED (IN LIQUIDATION) AND IN THE MATTER OF THE INSOLVENCY ACT 1986
||(1) ROBERT DEREK SMAILES
(2) STEPHEN BLANDFORD RYMAN
(as Joint Liquidators of ATRIUM TRAINING SERVICES LIMITED (in Liquidation)
||- and -
||(1) JOHN HENRY MCNALLY
(2) GEORGE SCOTT MACLEAN
(3) JOHN ALSTON DICK (in respect of Case No. 3378 of 2011 only)
||IN THE MATTER OF CONNOR WILLIAMS LIMITED AND IN THE MATTER OF THE INSOLVENCY ACT 1986
||(1) ROBERT DEREK SMAILES
(2) STEPHEN BLANDFORD RYMAN
||- and -
||(1) PAMELA MCNALLY
and seven others
Mr Simon Davenport QC and Mr Daniel Lewis (instructed by Isadore Goldman Solicitors) for the Applicants
Mr Stephen Robins (instructed by Mishcon de Reya) for the First and Second Respondents in the Atrium Proceedings
Hearing date: 22 May 2013
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Henderson:
- By order dated 28 November 2012 ("the November order") I directed that the Atrium proceedings and the CWL proceedings should be tried and case managed together, and gave a series of directions designed to lead to the trial of the two sets of proceedings on the first available date after 4 October 2013 with a time estimate of 30 days. The trial has subsequently been listed for hearing in a trial window beginning on 29 April 2014.
- Paragraphs 6 to 10 of the November order dealt with disclosure. By paragraph 6, which applied to the Atrium proceedings, the Liquidators were ordered by 4 pm on 2 April 2013 to:
"(1) conduct a search for documents falling within CPR 31.6, in compliance with the requirements set out in CPR 31.7; and
(2) provide Mr McNally and Mr MacLean and Mr Dick [the respondents to the Atrium proceedings] with a list of documents, identifying the documents located as a result of the search described above, in compliance with the requirements set out in CPR 31.10."
Paragraph 7 directed the parties in the CWL proceedings to give standard disclosure to the other parties by list by the same date, and paragraph 8 provided that any documents disclosed in the Atrium proceedings should be disclosed to the parties in the CWL proceedings, and vice versa. Paragraphs 9 and 10 of the November order dealt with inspection, which was to be completed by 16 April 2013.
- Those disclosure directions were, in the end, agreed between the parties and approved by the court. But the history of the disclosure exercise undertaken by the Liquidators in the Atrium proceedings had been long and troubled, and by an application issued on 28 June 2012 the first and second respondents, Mr McNally and Mr MacLean, had asked the court to make an order for disclosure against the Liquidators in "unless" form. The general background to the case, and the relevant history of the disclosure exercise, are described in the transcript of the oral judgment which I delivered on 28 November dealing with the costs of that application: see  EWHC 3793 (Ch) ("the November judgment").
- The present judgment should be read as a sequel to the November judgment, and I will not repeat the background material or the detailed description of the Atrium disclosure exercise contained in it. It is enough to say, by way of bare summary, that no fewer than four dates for disclosure had been set by previous orders of the court, the last of which was 8 June 2012. On that day, the solicitors then acting for the Liquidators, Howes Percival, served a list of documents, accompanied by a letter explaining the methodology which they had employed. The first and second respondents, and their solicitors, Mishcon de Reya ("Mishcons"), took the view that the disclosure made by the Liquidators was in several major respects flawed and inadequate; and after failing to resolve matters in correspondence, they issued their application for an unless order on 28 June.
- What then happened on the Liquidators' side is summarised in paragraphs 16 to 19 of the November judgment. The substantive hearing of the respondents' application could not be fixed for a date before November. Meanwhile, without informing Mishcons, the Liquidators through Howes Percival embarked on a massive fresh disclosure exercise, the first stage of which was to examine the contents of 307 boxes of potentially relevant material. Although up to eight fee earners were set to work on this task from August 2012 onwards, it was still incomplete when Mr Smailes, the first applicant, belatedly explained what had been going on in a lengthy witness statement which he signed on 21 November 2012, only a few working days before the forthcoming hearing.
- In the light of Mr Smailes' last minute evidence, it was soon agreed that the Liquidators should be given time to complete the fresh and apparently comprehensive disclosure process on which Howes Percival had been working since August. Mr Smailes described the work still to be done, based on his understanding of what Howes Percival had told him. It would have been reasonable to conclude from his evidence that a further period of two months should suffice, including a period of about one month to prepare a list of the contents of the first 167 boxes in compliance with CPR part 31. By the date of the hearing, however, it had become clear that this was an under-estimate, and in the end the parties agreed that the Liquidators should be given until 2 April 2013 to complete the task, that is to say a period of just over four months. In paragraph 18 of the November judgment, I said it was already apparent that:
"… at least three more months will be needed for the exercise which was set in motion last August to be finally concluded."
- A further complication was that the Liquidators had changed their legal team just before the November hearing. Their new solicitors, Isadore Goldman, were not formally instructed until 27 November, the day before the hearing, and it was only in the afternoon of that day that counsel were instructed. In those circumstances, it is obvious that the Liquidators' new team could do no more than make an educated guess about how long it would take to complete the disclosure exercise, and in negotiating successfully for four months they may well have thought they were erring on the side of caution. On the other hand, there were a number of factors which told in favour of a reasonably generous extension of time, quite apart from the sheer volume of the material still to be examined. First, the new team would have to acquaint themselves from a standing start with the issues and documentation in a very substantial and hotly contested piece of litigation. Secondly, disclosure would now become their professional responsibility, and it could not be certain that they would agree with the approach and methodology adopted by their predecessors. Thirdly, as Howes Percival were no longer acting or on the record, it would be necessary to obtain the 300 or so boxes of Atrium papers in their possession before detailed work could begin, and Howes Percival could not easily be compelled to produce them expeditiously or to hand over the fruits of their work to date. Finally, it was clear from Mr Smailes' evidence that Howes Percival's team had been working on the papers manually and had not attempted to produce any form of electronic archive, even though the number of documents to be examined ran into the hundreds of thousands.
- The parties were unable to agree how the costs of the disclosure application should be dealt with, and this was accordingly the main issue which I had to resolve at the November hearing. For the reasons given in paragraphs 21 and 22 of the November judgment, I decided that the Liquidators should pay the costs of the application, but on the standard, not the indemnity, basis. I formed that view having taken account of all the evidence before me and the submissions of counsel. I referred to the main considerations which influenced my decision in paragraph 22, which for convenience I will repeat:
"22. In the present case, I take the view that, if Howes Percival had continued to adopt a co-operative and bilateral approach to the disclosure exercise after issue of the present application, it should have been possible to reach agreement on the extra time that would be needed for the exercise to be completed and a consent order could have been made, or, at the very least, there would only have needed to be a brief hearing with junior counsel instructed. As it is, the position remained almost wholly obscure to Mr McNally and Mr MacLean and those advising them until, effectively, Thursday of last week. I am, therefore, satisfied that the liquidators should pay the costs of the present application. I do not, however, consider that their conduct has been so unreasonable as to justify the making of an order for costs on the indemnity basis. I bear in mind, in particular, that Howes Percival and the liquidators did put in hand the necessary work as long ago as August, and they have been devoting very substantial energy and resources to it over the last two months. I also bear in mind in their favour that, down to June of this year, their general approach to disclosure appears to me to have been broadly sensible and cooperative. I, therefore, consider that justice will be done in the present case if I order them to pay the costs of the first and second respondents of the disclosure application on the standard basis."
- Isadore Goldman then set to work, the solicitor with day to day conduct of the matter on behalf of the Liquidators being Mr David Gibbs. As I shall explain in more detail later in this judgment, he contacted Howes Percival in early December, but it was only on 3 January that the lists produced by Howes Percival were received in incomplete form, and it was not until 14 January that the boxes of documents were delivered. On 23 January, Mr Gibbs conducted an initial review of the boxes, and on 25 January a meeting took place with Mishcons at which Isadore Goldman put forward two methodologies for consideration, their preference being for one whereby an e-disclosure provider would be engaged to scan and upload the documents into a database, or "e-disclosure platform". There is a dispute, which I cannot resolve, whether agreement to proceed in this way was reached at the meeting, but it is at least clear that no objection was raised by Mishcons, and it was they who suggested the use of a company called Unified as the e-disclosure provider. Mr Gibbs then obtained quotations from three providers, including Unified, and on about 4 February 2013 Unified were selected.
- It soon became clear to Mr Gibbs that it would be impossible for Unified (or any of the other providers whom he had approached) to complete the necessary work by 2 April 2013, and he intended to raise the question of an extension of time with Mishcons as early as 7 February. Unfortunately, however, a letter which he drafted on that date was never sent, and it was not until 7 March that Isadore Goldman wrote to Mishcons requesting their agreement to an extension. By that stage, Mr Gibbs had undertaken a spot check of the files with the help of junior counsel, and they had concluded that certain categories of documents should be excluded from disclosure on grounds of irrelevance. On that basis, the total number of boxes of documents for disclosure, including the boxes in the CWL proceedings, had been reduced from 545 to 149. Unified said that they could scan and code this material in not more than three months, so the extension requested was until 30 June 2013.
- Meanwhile, Mishcons had raised a number of concerns about disclosure in correspondence. Some of their questions remained unanswered, and the answers to others they considered to be incomplete or unsatisfactory. They were therefore not minded to agree to an extension without fuller explanation, and on 15 March Mishcons wrote to Isadore Goldman saying:
"In the circumstances, and based upon the information available, we are not currently in a position to agree the extension you propose. In order for our client to consider your request further we require a detailed witness statement (with signed statement of truth) from your clients setting out exactly what has happened since 21 November 2012 and correcting the inaccuracies in Mr Smailes' previous evidence. The evidence should be in the same level of detail as that provided in Mr Smailes' previous evidence and set out exactly what has been undertaken, by whom and with what result. The evidence will also need to include a description of the process you now anticipate undertaking and the time each stage of that process is anticipated to take and why. We specifically require you to address the searches and investigations undertaken by your clients in relation to disclosure of electronic documents, as you know this is a specific area of concern for our clients."
Mishcons also pointed out that they represented only two out of the ten respondents or defendants affected by the request for an extension of time, and asked for confirmation that the others had been contacted.
- Isadore Goldman declined to provide the witness statement requested, and the matter continued to be debated inconclusively in correspondence. Finally, on 28 March, five days before the deadline of 2 April, Isadore Goldman issued an application asking for the November order to be varied by extending time for compliance with the disclosure obligations until 4 pm on 28 June 2013, and for consequential directions revising the pre-trial timetable as set out in a draft order annexed to the application. The application was supported by a witness statement of the same date by Mr Gibbs. Even after the weeding out of irrelevant documents, he said that there was still "a vast number of documents to be disclosed". He estimated the total number of disclosable documents as "up to 263,500", on the basis that there were "some 155 boxes of documents which average 1,700 documents per box".
- Mr Gibbs sought to rebut the accusation that Mr Smailes had misled the court in his earlier evidence about the disclosure exercise undertaken by Howes Percival. He also pointed out the advantages of having the documents uploaded onto an e-disclosure platform:
"37. … The documents are being scanned and are having a coding applied to them by Unified; this process allows the electronic version of the documents to be searched by the use of a piece of software. By conducting searches of the documentation in this fashion documents which are subject to disclosure pursuant to CPR 31 can be identified, grouped into a list (by reference to the list of issues between the parties) and then disclosed. By having the documents in an electronic format copies can be provided by the production of an external hard drive or CD-ROM, as opposed to providing a hard copy of each and every document. Furthermore, the electronic versions of the documents contained in the list can be searched by the use of software."
He said that the disclosure list would be provided by 28 June, together with electronic versions of all documents disclosed in both sets of proceedings. This would allow the respondents "far easier access to the documentation as opposed to a hard copy based disclosure". He also submitted that there would be little prejudice to the respondents, given that the trial would not begin before the end of April 2014.
- On 23 April 2013, Mishcons countered with a cross-application issued on behalf of Mr McNally and Mr MacLean, asking that the Atrium proceedings be struck out, or in the alternative that any extension of time granted to the Liquidators should be on "unless" terms, and in any event that the order for costs in the November order be varied to provide for the assessment of their costs on the indemnity rather than the standard basis. The application was supported by a lengthy witness statement made by Mr Martin Shobbrook, the partner of Mishcons with conduct of the matter on behalf of Mr McNally and Mr MacLean.
- The basis of the striking out application is that a fair trial of the Atrium proceedings is no longer possible in view of the alleged failures of the Liquidators to secure and preserve documents, including in particular the vast electronic archives of Atrium which were disposed of under a sale and purchase agreement entered into in May 2006 when the Liquidators were joint administrators of Atrium. It is believed to be the case, for reasons which I need not go into, that Atrium's electronic archives are no longer recoverable, and the Liquidators' present position is that they have no electronic documents at all to disclose. They deny, however, that there was any impropriety in the sale which took place in May 2006, at a time when it was their duty as administrators of Atrium to perform their functions with the objective (relevantly) of achieving a better result for the company's creditors as a whole than would be likely if the company were wound up: see paragraph 3(1)(b) of Schedule B1 to the Insolvency Act 1986. The Liquidators also say that the company which purchased the Atrium archives in May 2006, Options Employment Group Limited, was under the control of Mr McNally, Mr MacLean and members of their families.
- I am not directly concerned with the strike out application, because the parties have agreed the terms of a consent order adjourning it to be heard on the first available date after 5 July 2013 with a time estimate of 5 days, and a timetable for completion of the evidence in the meantime. Accordingly, the issues which I now have to consider are:
(1) whether the Liquidators should be granted an extension of time to comply with their disclosure obligations under the November order;
(2) if so, whether the order should be made on "unless" terms; and
(3) whether paragraph 24 of the November order should be varied to provide for the assessment of the costs of Mr McNally and Mr MacLean on the indemnity basis.
- The main evidence relevant to those issues is to be found in the witness statements of Mr Gibbs and Mr Shobbrook which I have already mentioned; the relevant part of Mr Smailes' statement of 21 November 2012; a further statement in reply from Mr Gibbs dated 13 May 2013; and the relevant part of a further statement from Mr Smailes, also dated 13 May 2013. I have had the benefit of clear and cogent submissions, both written and oral, from Mr Simon Davenport QC and Mr Daniel Lewis on behalf of the Liquidators, and Mr Stephen Robins for Mr McNally and Mr MacLean. The other parties potentially affected, that is to say Mr Dick in both the Atrium and the CWL proceedings, and Tracey Williams and the family members of Mr McNally and Mr MacLean who are respondents to the CWL proceedings, have made it clear through their respective solicitors (with varying degrees of reluctance) that they do not oppose the extension of time sought by the Liquidators, and do not wish to argue that it should be granted on "unless" terms, although they say that any subsequent extension should be.
- After hearing oral argument in the afternoon of 22 May, I indicated that I might give an oral judgment the following day. On reflection, however, I considered that the issues were of sufficient difficulty and importance to the parties to merit a written judgment, particularly as they involved consideration of the recent revisions to the wording of the overriding objective in CPR 1.1 with effect from 1 April 2013. The effect of those changes, introduced as part of a package of reforms stemming from Sir Rupert Jackson's review of civil litigation costs in England and Wales, is to add a reference to "proportionate costs" in rule 1.1(1) and (2), and to add a new sub-paragraph (f) to rule 1.1(2) which emphasises the importance of "enforcing compliance with rules, practice directions and orders". Mr Robins placed the second of these changes at the forefront of his submissions on the first and second issues, while Mr Davenport QC placed more emphasis on the first, as well as on the existing requirement of proportionality enshrined in rule 1.1(2)(c).
- Since I was clear in my mind that the first issue should be decided in the Liquidators' favour, and that an extension should be granted until 28 June 2013, I informed the parties accordingly on the day after the hearing, and said that a written judgment would follow in due course. I will now give my reasons for reaching that conclusion on the first issue, and will then deal with the second and third issues. I will begin, however, by giving some more detail of the history of events since November of last year.
Developments since the date of the November order
- Mr Gibbs first contacted Howes Percival on 4 December 2012, asking for a copy of the lists that had been produced as a result of the fresh search. Having received no response, he then sent an email on 12 December to Danielle Haston, the solicitor at Howes Percival who had been coordinating the disclosure exercise, asking again for copies of the documents produced so far (including the draft list of issues which had passed between Howes Percival and Mishcons) and for an explanation of the methodology used in the search.
- Ms Haston replied on the same day, giving a brief explanation of how the document review had been conducted. She said that the plan had been to carry out the task in two stages. The first stage involved the review and organisation of the documents contained in the first 167 boxes of Atrium documents. That work was virtually complete, and had revealed a vast number of apparently irrelevant documents which were only recorded in generic form. She said Mishcons had been asked to agree to the exclusion of those documents, and samples had been sent to them after a meeting on 19 November, but a response from Mishcons was still awaited. The remaining work to be done in respect of stage one was to review the last eight boxes of Atrium documents, and to complete the examination of the so-called Group Documents (boxes 176 to 304), approximately half of which had already been reviewed. Once stage one had been completed, it was then intended to produce a list of documents for disclosure (stage two), a task which Ms Haston thought would have occupied her for about four weeks with the help of paralegals. As regards the handing over of the documents, Ms Haston said that she could not do this without the express authority of Richard Healey, who was currently out of the office and was due to leave the firm on 21 December. She suggested that the terms for handover of the files should be separately discussed at partner level.
- On 17 December Mishcons wrote to Isadore Goldman raising a number of concerns about disclosure. They said, among other things, that they had not received any response to the revised list of issues provided to Howes Percival on 19 November, and invited Isadore Goldman to attend a meeting to discuss the proper scope of the search with reference to Mishcons' proposed list of issues. The letter concluded:
"Our clients incurred significant (as it turned out unnecessary) costs in relation to your clients' failure to conduct disclosure and our clients have no wish to repeat that experience. We therefore invite you to recommend to your clients that we should meet as soon as possible in order [to] initiate a discussion in relation to the disclosure exercise your clients are required to undertake …"
- Although Mishcons had suggested two possible dates before Christmas for such a meeting, their invitation was not immediately taken up, and it was not until 2 January 2013 that Mr Gibbs sent a chasing email to Ms Haston, saying that he had still not received the list of documents for boxes 1 to 167, the generic lists of excluded documents, or the list of relevant documents extracted from the Group Documents. Ms Haston replied on the following day, attaching copies of the schedules prepared by Howes Percival in the course of the review. She also said that the boxes of documents stored in Manchester (numbering approximately 158) had been collected on 2 January, and that collection of the remaining 350 or so boxes from Norwich had been arranged for 8 January.
- A week later, on 10 January, Mr Gibbs wrote to Mishcons, saying that before any further boxes were reviewed "we propose to agree with you the method by which the results of that search are presented". He referred to the lists received from Howes Percival, and suggested that they should be used to prepare a list of documents arranged by reference to Mishcons' list of issues. He said he would welcome the opportunity to meet Mishcons "to discuss this issue and to agree the way forward".
- Meanwhile, on 7 January Mr Gibbs had replied to Ms Haston, saying that the schedules which she had produced were merely commentary provided by Howes Percival, and asking "where are the lists produced by the 12 members of HP staff that have been working on the disclosure issues since July last year?" He continued:
"Your methodology provided that a full list would be produced and that there were some 77 boxes left to review. Where is the product of that search? As stated the list that you have provided is a simple commentary obviously not the product of all the work that was said to have been put in by members of your staff."
- Ms Haston replied on 11 January, explaining that the intention at stage one of the review process had not been to prepare a list of documents, but rather to be in a position to state "that every page of the files had been reviewed and that … no document had been overlooked". She inferred, no doubt correctly, from Mr Gibbs' email that he had expected more to have been achieved between mid August and mid November 2012, but said:
"I am sure that you will have a better understanding of the time which was involved in reviewing these documents once you commence your own review. You will no doubt also appreciate that the files are now in a far better order than the original files that were provided to us."
- On 16 January, Mishcons replied to Mr Gibbs' letter of 10 January. They said they were "extremely disappointed and concerned" by its contents, pointing out that it was nearly two months since Isadore Goldman had been appointed, and that it was only two and a half months until the Liquidators were required to complete their search. The letter continued:
"We are concerned at the lack of progress. Contrary to your letter we do not accept that your clients undertook or completed, prior to 8 June 2012, a proper search and disclosure exercise. This was the reason why our clients issued their application on 28 June 2012 and ultimately why that application was successful. Further, and again contrary to your letter, we do not accept that the work undertaken by your clients and Messrs Howes Percival between the beginning of July 2012 and 27 November 2012 was or is compliant with the requirements set out in Part 31. We refer you to our letter dated 17 December 2012. We enclose a further copy of our letter as it appears to us that you have failed to address a number of the key points and requests for information set out in that letter. Please now do so."
- Mishcons then set out their concerns in more detail, dealing first with electronic documents and then with hard copy documents. Under the latter heading, Mishcons said they welcomed the suggestion "to agree a method by which the results of the search are presented", and agreed with the proposal to use the headings in their list of issues for presentation of the list of documents "if our list of issues will also inform the search for documents". Mishcons sought confirmation that the proposal had been made in relation to all documents relevant to disclosure, and not merely the 70 boxes still to be searched. They also said they would welcome a meeting "to discuss and reach agreement on the points above (and other issues) and would expect that such a meeting would avoid the need for further protracted correspondence". They pointed out that they had in fact proposed just such a meeting on 17 December, and said they would be available for a meeting on Friday, 25 January. The letter continued:
"Please note that when we meet we would like to discuss with you the use of an e-disclosure platform in this case. We have, since your clients' evidence was served at the end of November, been giving serious consideration as to how the volume of documents your clients have to disclose could be presented for inspection and ultimately for trial in the most cost effective way. We also consider that our clients' own disclosure is sufficiently significant to warrant use of an e-disclosure platform. We would be grateful if you would take your clients' initial instructions on this proposal before we meet …"
- The boxes of documents were finally delivered to the Liquidators' storage facilities at Total Data Management, Brentwood, Essex on 14 January, and on 23 January Mr Gibbs went to examine them. He says it was apparent to him from this review "that the number and classes of documents to be reviewed would not be easily done in a traditional method", and he therefore contacted a number of e-disclosure support providers, including Legastat and Palmer Technologies Limited. I infer, although Mr Gibbs does not say so, that he was also encouraged to take this long overdue step by Mishcons' letter of 16 January.
- A meeting was duly arranged for 25 January, which Mr Gibbs attended with junior counsel, Mr Lewis. Mishcons were represented by Ms Hannah Blom-Cooper and Mr Danny Davis. Shortly before the meeting, Mr Gibbs sent to Ms Blom-Cooper a document headed "Without Prejudice/DISCLOSURE PROTOCOL", which proposed two methodologies for complying with the November order. In essence, the first methodology was to continue and complete the two stage manual process initiated by Howes Percival, while the second, and preferred, methodology was to perform a spot check to ascertain whether the descriptions of documents given in Howes Percival's lists were accurate, to exclude categories of document which were agreed to be irrelevant from the search, and for the remaining documents then to be scanned and uploaded into an electronic archive. That archive would then be filtered by agreed strategies, such as keyword searches, and reviewed for privileged documents. It would be stored in such a way that each party would have the same ability to access, search, review and display the documents. Although this protocol was initially headed "without prejudice", and although at least part of the meeting was intended to be without prejudice, reference to the protocol has been made without objection from either side, and I am satisfied that whatever privilege may originally have attached to the part of the meeting dealing with disclosure has now been waived.
- As I have already said, there is a dispute on the evidence, which I cannot resolve, whether agreement was in fact reached at the meeting that the second model proposed by Isadore Goldman should be adopted. There is, however, no challenge to Mr Gibbs' evidence that it was Mishcons who recommended the use of Unified, and that they did not raise any positive objection to the methodology proposed. After the meeting, Mr Gibbs wrote to Mishcons on the same day saying, among other things, that Isadore Goldman were still awaiting costs estimates for e-disclosure "and would wish to proceed in this way providing that those costs are not prohibitive". He also said that a spot check would be undertaken, which Mishcons were invited to attend, and continued:
"Once we have obtained quotations we will write again with a revised disclosure protocol. We hope to be in a position to do that in the next 7 days."
The remainder of the letter dealt with certain specific disclosure issues.
- One of the issues raised at the meeting on 25 January was whether the disclosure in the Atrium and CWL proceedings should be combined. Mr Gibbs says in his second statement:
"As far as we were aware at that time, there could have been 535 boxes of documents covering both cases. To have provided hard copies to all parties would have involved, potentially, over 1,500 boxes of photocopied documents – which we had concluded would have made for an enormously unwieldy trial bundle. [Mishcons] knew perfectly well that Howes Percival had not chosen to use an e-disclosure based approach and therefore it was not a surprise that in one sense the disclosure exercise was to be restarted."
- The result of the selection exercise was that Unified were chosen as the e-disclosure provider, following a meeting between them and Mr Gibbs on 30 January. The companies approached by Mr Gibbs made it clear to him that the work of scanning and coding the documents could not be completed by 2 April, "due to the sheer number of pages which numbered in the millions". Accordingly, on 7 February Mr Gibbs drafted a letter to Mishcons which proposed the removal from disclosure of 103 boxes on the ground that their contents were irrelevant, and that the rest of the documents should be scanned and coded. The draft continued:
"This will not be a small task and it is envisaged by the companies that we have approached for the disclosure platform, such work will not be ready in a period of 3 to 4 months from commencement of the work.
We therefore ask whether or not you would consent to a variation of the directions timetable … "
- Unfortunately, for some unexplained reason this letter was never sent, and there is a gap in the correspondence until 1 March 2013 when Mishcons wrote again to Isadore Goldman. Meanwhile, Mr Gibbs and Mr Lewis had conducted a spot check of the documents, although this did not take place until 28 February due to their respective commitments elsewhere. Although invited to attend the spot check, Mishcons had declined the invitation in a second letter of 1 February, saying they were confident it would be competently done. Mr Gibbs and Mr Lewis examined 10% of the Atrium boxes and 10% of the CWL documents. They concluded that the descriptions in the Howes Percival list were accurate, and that most of the CWL documents were copies of expenses claims for travel and subsistence which were irrelevant to the issues between the parties. Mr Gibbs says that the boxes examined were identified by reference to the 242 points contained in Mishcons' list of issues, as well as by reference to the classes of documents referred to.
- In their letter of 1 March Mishcons complained about the apparent lack of progress, and made the following general point:
"As a general point we must make it clear that although we welcome your approach to discuss with us the issues in relation to disclosure we cannot validate your clients' disclosure or indeed any proposed approach to disclosure any more than the Court can, until your clients' disclosure is complete and their list served. That said we can and will make comments which we intend to be of assistance to you in correcting the problems that your clients have faced in the past and, in our view have caused, in relation to the manner in which they have conducted disclosure."
If I may comment on that comment, it seems to me unfortunate that it was framed in such reactive and correctional terms, when the need throughout has been for this massive disclosure exercise to be planned and conducted proactively, with as much cooperation as possible between the parties and their solicitors. However, some comments later in the letter were much more positive in tone:
"You have indicated that as a preliminary matter you are conducting (or perhaps have completed) a spot check … We agree that this approach appears sensible …
We understand and accept that it is your desired intention to upload the documents referred to in Schedules C & D (excluding the obviously irrelevant documents) onto an E-disclosure platform in order to perform such a search using the E-disclosure tools and presumably working within the terms of the PD 31B and treating these documents as documents in electronic form for that purpose. Please confirm that our understanding is correct. In any event we agree that it would appear that such an exercise would ultimately be beneficial not just to your clients in relation to completing disclosure but also in relation to all parties in preparing this case for trial."
I would respectfully endorse the obvious good sense of the comment made in the final sentence. Mishcons went on, however, to express their concern that the current deadline for disclosure would be missed, and put Isadore Goldman on notice "that any significant delay in finalising disclosure could prejudice our clients' preparation for trial".
- Mr Gibbs replied on 7 March, beginning with an apology that the letter of 7 February had never been sent. This had been explained in a telephone conversation the previous day between Mr Loome, the partner with conduct of the case at Isadore Goldman, and Mr Shobbrook. The letter went on to say that Mr Gibbs and Mr Lewis had been working to try to reduce the volume of documents to be disclosed, commenting:
"Rather unhappily, we have discovered that our predecessors did not undertake any activity designed towards being able to produce a fully CPR compliant List of Documents but instead appear to have employed their large team of fee earners simply to go through the boxes in order to be able to say that the same had been searched. This has meant that the requirements of CPR 31 have had to be dealt with from a standing start."
As will become apparent, the respondents rely on this statement as an implicit admission that the work carried out by Howes Percival had been a waste of time and achieved nothing.
- The letter then said that Unified had been retained, and gave details of the documents which it was now thought ought to be excluded from disclosure on grounds of relevance. Confusingly, the list of boxes suggested for exclusion differs significantly from that in the unsent letter of 7 February. There is no explanation in the evidence for the difference between the two lists. In addition, the letter said that Isadore Goldman had "sought to remove the raw accountancy data, in the form of invoices, credit notes and daily journal entries", although they proposed to make disclosure of all the management accounting information. On this basis, the number of boxes of documents for disclosure had been reduced from 545 to 149.
- In the final section of the letter, headed "Directions", Isadore Goldman said they had been advised (presumably by Unified) that the scanning and coding exercise could be completed in not more than three months. They therefore asked Mishcons to agree to a variation of the directions timetable to provide for disclosure to take place by 30 June 2013. The point was made that the trial had now been listed in a window starting on 29 April 2014, so:
"… it is clear that an additional three months for the completion of disclosure in a way agreed by both parties (thereby removing the possibility of further procedural disputes) can be accommodated without any prejudice to either party."
- The relevant boxes of documents were finally delivered to Unified on 12 and 13 March. It follows that Unified were not able to start work until 14 March at the earliest. On the other hand, the size of the task had been very substantially reduced by the reduction in the total number of boxes from 545 to 149.
- On 7 March, Mishcons replied to Isadore Goldman's letter of 7 March. They asked for a copy of the unsent letter of 7 February, and denied that any agreement on methodology had been reached at the meeting on 25 January or subsequently. They repeated the rather unhelpful general comment which they had made in their letter of 1 March: see paragraph 35 above. They expressed surprise about Isadore Goldman's disparaging reference to the work done by Howes Percival, and gave the first intimation of a possible application to vary the order for costs which I had made in November, on the basis that Mishcons and the court had been "misled by the evidence of Mr Smailes".
- After dealing with various other matters, Mishcons turned to the question of an extension of time. Having given the matter careful consideration with their clients, Mishcons refused to accept that they would not be prejudiced by the proposal. They pointed out that the respondents had been subject to a freezing order since May 2011, and that almost a year had now elapsed since close of pleadings. Two attempts at disclosure had proved abortive, and Isadore Goldman had been obliged to start again from scratch. The directions in the November order had deliberately allowed for a period of 12 months between the completion of disclosure and trial, which Mishcons said they had expected to be in the middle of 2014, so that there would be flexibility to accommodate extensions of time to produce witness and/or expert evidence. The respondents would be further prejudiced by the extension "because there will be less flexibility in this regard".
- The letter concluded with the request for a further detailed witness statement which I have already quoted in paragraph 11 above.
- It is unnecessary for me to refer to the subsequent correspondence, in which increasingly entrenched positions were taken on each side. As to the work being carried out by Unified, Mr Gibbs says in his second statement (dated 13 May) that they have now scanned over 63,000 documents, and the Liquidators are confident they will be able to provide a list of documents compliant with CPR 31.10 by 28 June 2013 "together with an electronic version of the hard copy documents so that the issue of inspection can be dealt with swiftly as well". It is worth noting, in this connection, that in a letter dated 19 March 2013 Isadore Goldman had confirmed that there are now no electronic documents (i.e. documents which were originally produced in electronic form, such as emails or data archives) to be disclosed by the Liquidators.
Issue (1): should an extension of time be granted?
- Against this factual background, the first question is whether the Liquidators should be granted an extension of time to comply with their disclosure obligations under the November order. The power to extend time for compliance with a court order is contained in CPR 3.1(2)(a), which says that the court may "extend or shorten the time for compliance with any rule, practice direction or court order". In Robert v Momentum Services Limited  EWCA Civ 299,  1 WLR 1577, the Court of Appeal held that where an application for an extension is made before the expiry of the stipulated period, it would be wrong in principle to regard the case as one of relief from sanctions, and the court's discretion should be exercised simply by having regard to the overriding objective: see the judgment of Dyson LJ (as he then was), with whom Sir Andrew Morritt V-C and Hale LJ agreed, at . The Court of Appeal further held that in determining how to exercise this discretion the court should concentrate on the prejudice that either had been or would be caused to the defendant by the failure to take the relevant step by the stipulated time, and that it would not generally be appropriate to investigate any pre-existing prejudice, although "there may be circumstances in which the prejudice suffered as a result of the failure to act in time will be qualitatively affected by earlier prejudice": see . Finally, if the court is asked to take into account the merits of the underlying claim, it will rarely be appropriate to dismiss an application for an extension of time on that ground unless the court is able to conclude that an application to strike out the claim, or for summary judgment, would succeed; and in such circumstances, the defendant should issue an application for that purpose, to be heard at the same time: see  to .
- Relying on these well-established principles, Mr Davenport QC submits that the present application was made in time, that it is not therefore a case where the court has to consider whether the conditions for relief from sanctions under CPR 3.9 are satisfied, and that the court should instead concentrate on the question whether the proposed extension either has caused or would cause any significant prejudice to Mr McNally and Mr MacLean. He says that no such prejudice can be shown, because the trial has now been listed for 29 April 2014, and it will not be jeopardised by an extension of time for disclosure until the end of the June 2013. To the extent that the respondents are prejudiced by their subjection to freezing orders since May 2011, that prejudice is pre-existing and would not be exacerbated in any way by the grant of an extension. The claims are very substantial, and although they are vigorously defended it has never been suggested that they are too weak to go to trial. Further, the contention that a fair trial is no longer possible will be the subject of separate strike out proceedings to be heard later this year.
- Mr Davenport also relies on the fact that Isadore Goldman were instructed only on the eve of the November hearing, at a time when they could not know precisely how long would be needed to complete disclosure. He submits that they have made considerable efforts to move matters forward since the last hearing, as set out in Mr Gibbs' evidence and the correspondence. He emphasises that the proposal to use an e-disclosure platform was first put forward by Mishcons, who also recommended Unified. Having acknowledged the obvious benefits to all parties of a comprehensive electronic disclosure process in Mishcons' letter of 1 March 2013, it is unreasonable for the respondents now to argue that Unified should not be allowed the time needed to complete their task.
- In answer to these submissions, Mr Robins relies by way of background on the lamentable earlier history of disclosure by the Liquidators, and the apparent acknowledgement by Mr Gibbs in correspondence that even the work done by Howes Percival between August and November 2012 had been virtually useless. He goes on to submit that, despite the apparent need to start again from square one, the Liquidators have largely wasted the generous extension of four months given to them by the November order. An extension of time is never a formality, and the burden is now on the Liquidators to satisfy the court that they should be granted a further extension. There is a strong case, submits Mr Robins, for saying that no extension should be granted. If the Liquidators had revealed the true position about the work done by Howes Percival before the November hearing, the respondents would have pressed for, and obtained, an order on "unless" terms. Since the Liquidators would have failed to comply with that order, their claims would have been struck out automatically, and the Liquidators would therefore now be in the position of having to apply for relief from sanctions under CPR 3.9. Accordingly, the court should approach the present application as if it were one for relief from sanctions.
- More generally, Mr Robins also relies on the changes to the overriding objective which took effect on 1 April 2013, including in particular the new rule 1.1(2)(f) with its emphasis on "enforcing compliance with rules, practice directions and orders". Mr Robins referred me in this connection to a lecture given by Lord Dyson MR to the District Judges' Annual Seminar on 22 March 2013, in which he stressed that the new "Mark II" overriding objective, as he termed it, was intended to herald a new and tougher approach to rule compliance and case management, recognising that the need to deal with a case justly involves not only the need to secure justice as between the parties, but also a proper consideration of proportionality and the interests of other court users.
- Mr Robins also referred me to the decision of His Honour Judge Pelling QC, sitting as a judge of the High Court, in Fons HF v Corporal Limited and another  EWHC 1278 (Ch), where he had to deal on 9 May 2013 with an application for an extension of time for the filing of witness statements. Earlier orders for the exchange of statements had been made in October 2011 and November 2012, and the time stipulated in the latter order had been extended by agreement between the parties down to 18 April 2013. The judge said in paragraph 8 of his judgment that he had "come very close to refusing an extension to either of the parties", and that in the light of the recent changes to the overriding objective:
"A failure to comply with a rule, direction or order is of itself a clear breach of the overriding objective and is likely to result in severe sanctions."
In the end, the judge was persuaded to allow a very short extension of time because the hearing was taking place very soon after the amendments to the CPR, and because the time which had elapsed since the end of the final agreed extension was relatively short.
- After the hearing had concluded, Mr Robins drew my attention to a judgment handed down by Edwards-Stuart J on 22 May 2013 (the day of the hearing before me) in the case of Venulum Property Investments Limited v Space Architecture Limited and others  EWHC 1242 (TCC). In that case the judge refused an application for permission to extend time for service of the particulars of claim, relying in part on the stricter approach that must now be taken by the courts towards those who fail to comply with rules since the changes which took effect on 1 April. The circumstances were, however, very different from those of the present case, because the application was not made until after the relevant period had expired, and it was therefore necessary for the claimant to obtain relief from sanctions under CPR 3.9. In view of those differences, I do not find the case of much assistance; but it does provide an illustration of the increasingly strict approach of the court to cases of non-compliance with time limits. In that connection, Edwards-Stuart J referred at  to the decision of the Court of Appeal in Fred Perry v Brands Plaza Trading  EWCA Civ 224, where Lewison LJ (giving the judgment of the Court) cited with approval paragraph 6.5 of the Jackson Report, which said:
"… courts at all levels have become too tolerant of delays and non-compliance with orders. In so doing they have lost sight of the damage which the culture of delay and non-compliance is inflicting on the civil justice system. The balance therefore needs to be redressed."
- In considering these submissions, I begin with the obvious point that this is an application for an extension of time made before the expiry of the relevant deadline under the November order. It is not an application for relief from sanctions under CPR 3.9, and in my judgment it would be wrong in principle to treat it as though it were such an application on the basis of speculation about what might have happened had I been persuaded to make an unless order last November. I consider that the guidance given by the Court of Appeal in Robert v Momentum Services Limited remains good law, with the result that the court must exercise its discretion (paragraph ):
"… by simply having regard to the overriding objective of enabling the court to deal with cases justly including, so far as practicable, the matters set out in rule 1.1(2)."
- The matters set out in rule 1.1(2) now include, of course, the enforcement of compliance with orders. To that extent, it is no doubt the case that the court will scrutinise an application for an extension more rigorously than it might have done before 1 April, and that it must firmly discourage any easy assumption that an extension of time will be granted if it would not involve any obvious prejudice to the other side.
- On the other hand, I think it is important not to go to the other extreme, and not to encourage unreasonable opposition to extensions which are applied for in time and which involve no significant fresh prejudice to the other parties. In cases of that nature, considerations of cost and proportionality are highly relevant, and the wider interests of justice are likely to be better served by a sensible agreement, or a short unopposed hearing, than by the adoption of entrenched positions and the expenditure of much money and court time in preparing for and dealing with an application that could have been avoided.
- I would also observe that, although all court orders mean what they say, and must be complied with even if made by consent, there are some orders relating to the completion of specified stages in preparation for trial (such as disclosure, the exchange of witness statements or a timetable for expert evidence) where there may still be so many imponderables when the order is made that the date for compliance cannot sensibly be regarded as written in stone. Everything will always depend on the circumstances of the particular case, and the stage in the proceedings when the order is made, but in many such cases it should be understood that there may be a need for reasonable extensions of time or other adjustments as the matter develops. It would, I think, be unfortunate if the new and salutary emphasis on compliance with orders were to lead to a situation where, in cases of the general type I have described, a reasonable request for an extension were to be rejected in the hope that the court might be persuaded to refuse any extension at all.
- In the present case, I consider that the balance comes down in favour of granting the Liquidators the extension which they request. The crucial points, as it seems to me, are these. First, the Liquidators' new legal team were inevitably starting from scratch on 28 November 2012 and they faced the difficulties which I have already mentioned in paragraph 7 above. Secondly, the sheer scale of the hard copy documentation in the two sets of proceedings is such as to make it overwhelmingly desirable, in the interests of the parties and (in due course) the court at trial, that disclosure should be effected through the use of an e-platform. Thirdly, there is no suggestion that Unified were an unsuitable e-provider to instruct for this purpose, or that they ought to be able to complete the task in less time than they say is needed. Indeed, it was Mishcons who suggested that Unified should be instructed. Fourthly, Mr Robins has not been able to point to any significant additional prejudice that would be caused to Mr McNally or Mr MacLean if time were to be extended until 28 June, bearing in mind that the trial will not start before 29 April 2014 at the earliest. Fifthly, if I were to refuse to grant any extension, the result would in my judgment be disproportionate and unfair. The Liquidators would in effect be compelled to abandon their claims, brought on behalf of the respective creditors whom they represent, in cases where very large sums are at stake and allegations of serious misconduct are made. The issue whether a fair trial is still possible is a separate matter, which forms the subject matter of the adjourned cross-application to strike out the claims. If that application succeeds, the extension of time which I am now considering will become an irrelevance. If, however, the application to strike out fails, it would not serve the interests of justice if the claims were nevertheless to be frustrated by the Liquidators' failure to meet the disclosure deadline in the November order.
- I am satisfied, for these reasons, that an extension of time should be granted. Since the overriding need is for Unified to be able to complete the task which they have in hand, and since there is no evidence that they could do it in less time than is requested, I see no sensible alternative to granting the whole of the extension sought, that is to say until 4 pm on 28 June 2013.
Issue (2): should the extension be granted on "unless" terms?
- Mr Robins submits that any extension should be granted on strict "unless" terms. He says that such an order would in fact have been justified last November, but the need for it was concealed by the incomplete and inaccurate evidence of Mr Smailes. An "unless" order is now long overdue, and the need for it is emphasised by the recent change to the overriding objective.
- Mr Robins relies on the unhappy history of the Liquidators' attempts to give disclosure to date, and points out that this will now be the fifth extension granted by the court, ending a year after the date on which the Liquidators first purported to give disclosure, and three months after the deadline set in the November order, to which the Liquidators and Isadore Goldman expressly consented. Grant of the present extension will necessitate another re-writing of the procedural timetable to trial, and if the Liquidators were to fail to meet the new deadline of 28 June 2013, there would have to be yet further adjustments to the timetable, and it might even become necessary to vacate the trial date. It is not open to the Liquidators to proceed at their own speed, says Mr Robins, and they have already been given every indulgence. The "Mark II" overriding objective requires that the new deadline should be a "hard" one, subject to the condition that the claims should be struck out if it is not met.
- In support of this general submission, counsel made a number of detailed criticisms about the conduct of Isadore Goldman in relation to disclosure since the November order. He submitted that Mr Gibbs had shown too little sense of urgency, that the major initiatives had in fact come from Mishcons, that many specific questions raised in correspondence remained unanswered, that next to nothing had happened in March 2013 (when even the spot check exercise was delayed to suit the convenience of Mr Gibbs and Mr Lewis), and that even now the evidence of what Unified have been instructed to do is very thin.
- On behalf of the Liquidators, Mr Davenport QC submitted that an unless order is an order of last resort. He referred me to the decision of the Court of Appeal in Hytec Information Systems Limited v Coventry City Council  1 WLR 1666, where at 1677E Auld LJ cited with approval the words of Beldam LJ in Caribbean General Insurance Limited v Frizzell Insurance Brokers Limited  2 Lloyd's Rep. 32 at 40:
"Final, peremptory or "unless" orders are only made by a court when the party in default has already failed to comply with a requirement of the rules or an order, and the court is satisfied that the time already allowed has been sufficient in the circumstances of the case, and the failure of the party to comply with the order is inexcusable."
Auld LJ added that:
"… the essential notion in play is whether a party's failure to comply with an order is inexcusable, in the sense of being without a reasonable excuse."
- Mr Davenport submitted that the Liquidators' conduct since November 2012 could not possibly be characterised as inexcusable. They had done all that could reasonably have been expected of them to comply with the November order, and the problem is simply that none of the e-disclosure providers approached by Isadore Goldman were able to complete the exercise of uploading and coding the documents by 2 April 2012.
- Mr Davenport elaborated these submissions orally, in an attempt to persuade me that the Liquidators and Isadore Goldman had done all they reasonably could to comply with the November order. But I do not agree. Even making every allowance for the difficulties facing the new team, I consider that Isadore Goldman should have displayed more initiative and urgency in getting a grip on the situation, in chasing Howes Percival, in arranging a meeting at the earliest opportunity (and certainly before Christmas) with Mishcons, in selecting and instructing Unified (or some other suitable e-provider) and in winnowing out the huge number of apparently irrelevant documents from the boxes. The need for urgency should have been all the more apparent, given the lamentable history of the disclosure exercise in the Atrium proceedings to date, and the fact that four deadlines for disclosure had already been missed. Mr Gibbs does not say in evidence how many people at Isadore Goldman were working on disclosure apart from himself, and it may well be that insufficient resources were devoted to the task. Further, the unexplained failure to send the letter of 7 February 2013 does not inspire confidence, and the delay in arranging the spot check until the end of February, in order to suit the diaries of Mr Gibbs and Mr Lewis, is again unfortunate. The end result is that the relevant boxes of documents did not actually reach Unified until 12 March 2013, only three weeks before the expiry of the four month extension granted in November.
- I do not say that, if the matter had been approached with the necessary degree of urgency and initiative, it would have been possible to complete the disclosure exercise by 2 April 2013. I do, however, consider that Unified would have been able to complete a much greater proportion of their work, and that the extension now sought would have been correspondingly shorter.
- I accept that an unless order should normally be regarded as one of last resort, or perhaps more accurately as one of penultimate resort, since even after an unless order has taken effect it is always open to the party in default to seek relief from sanctions under CPR 3.9: see generally Marcan Shipping (London) Limited v Kefalas  EWCA Civ 463,  1 WLR 1864. I also accept that, before making an unless order, the court should always carefully consider whether the sanction imposed for non-compliance is appropriate in all the circumstances of the case. I consider, however, that the stage has been reached in the present case where it is appropriate to make such an order in the Atrium proceedings, and that the sanction for non-compliance should be for the claims in those proceedings to be struck out, subject to the right of the Liquidators to apply (if they can) for relief from sanctions. The main factors which have weighed with me in coming to this conclusion are: (a) the long and unsatisfactory history of disclosure in the Atrium proceedings before November 2012; (b) the deficiencies to which I have drawn attention in the Liquidators' attempts, through Isadore Goldman, to comply with the November order; and (c) the increased emphasis which the court is now obliged to accord to compliance with court orders under the amended overriding objective.
- I am not, however, satisfied that it would be right to make an unless order in relation to the CWL proceedings and paragraph 7 of the November order. There had been no previous order for disclosure in those proceedings, and the extension now sought is the first one. The parties have sensibly agreed that disclosure in the two sets of proceedings should be combined, but it would be an unfortunate side-effect of that constructive agreement if the Liquidators' past history of default in relation to disclosure in the Atrium proceedings were also to be visited upon them in relation to the CWL proceedings. In my view justice will be done if the sanction for non-compliance with the extension of time until 28 June is confined to the Atrium proceedings; but I make it very clear that, whether or not the Atrium proceedings were to be struck out for non-compliance, good reason would have to be shown for any further extension of time in the CWL proceedings, and it is likely that any further extension would be both short and on stringent unless terms.
Issue (3): should paragraph 24 of the November order be varied to provide for indemnity costs?
- I will deal with this issue relatively briefly, because I am satisfied that it would be wrong in principle for the court to seek to revisit the basis of assessment of the costs order which it made in favour of Mr McNally and Mr MacLean last November.
- Mr Robins confirmed in oral argument that the power which the respondents invite the court to exercise is that contained in CPR 3.1(7), which provides that:
"A power of the court under these Rules to make an order includes a power to vary or revoke the order."
The proper scope and interpretation of this power has caused the courts a good deal of trouble over the years, but the nature of the jurisdiction has now been authoritatively reviewed by the Court of Appeal in Tibbles v SIG Plc  EWCA Civ 518,  1 WLR 2591. The leading judgment was delivered by Rix LJ, with whom Etherton and Lewison LJJ agreed. After considering the earlier cases, Rix LJ said at  that the jurisprudence permits the following conclusions to be drawn:
"(i) Despite occasional references to a possible distinction between jurisdiction and discretion in the operation of CPR r3.1(7), there is in all probability no line to be drawn between the two. The rule is apparently broad and unfettered, but considerations of finality, the undesirability of allowing litigants to have two bites at the cherry, and the need to avoid undermining the concept of appeal, all push towards a principled curtailment of an otherwise apparently open discretion …
(ii) The cases all warn against an attempt at an exhaustive definition of the circumstances in which a principled exercise of the discretion may arise. Subject to that, however, the jurisprudence has laid down firm guidance as to the primary circumstances in which the discretion may, as a matter of principle, be appropriately exercised, namely normally only (a) where there has been a material change of circumstances since the order was made, or (b) where the facts on which the original decision was made were (innocently or otherwise) mis-stated.
(iii) It would be dangerous to treat the statement of these primary circumstances, originating with Patten J and approved in this court, as though it were a statute. That is not how jurisprudence operates, especially where there is a warning against the attempt at exhaustive definition.
(iv) Thus there is room for debate in any particular case as to whether and to what extent, in the context of principle (b) in (ii) above, misstatement may include omission as well as positive misstatement, or concern argument as distinct from facts …
(v) Similarly, questions may arise as to whether the misstatement (or omission) is conscious or unconscious; and whether the facts (or arguments) were known or unknown, knowable or unknowable. These, as it seems to me, are also factors going to discretion …
(vii) The cases considered above suggest that the successful invocation of the rule is rare. Exceptional is a dangerous and sometimes misleading word: however, such is the interest of justice in the finality of a court's orders that it ought normally to take something out of the ordinary to lead to variation or revocation of an order, especially in the absence of a change of circumstances in an interlocutory situation."
- Mr Robins accepted that these are the principles which fall to be applied. He submits, in short, that the facts on which my original costs order was made were misstated by Mr Smailes in his first statement, because the work which Howes Percival had been carrying out in secret since August 2012 was in fact worthless and a waste of time. Mr Robins made it clear in his oral submissions that he was not accusing Mr Smailes of having deliberately misled the court in any way, but he said that Howes Percival had given Mr Smailes a misleading impression of the work which they were performing. Had the true position been properly explained to me, says Mr Robins, I would have awarded the respondents their costs on the indemnity basis.
- I am unable to accept these submissions. There is no challenge to the accuracy of Mr Smailes' evidence as a description of the work that was actually carried out by Howes Percival between August and November 2012. Although Mr Shobbrook in his evidence accuses Mr Smailes of having misled the court, he does not identify any specific parts of Mr Smailes' evidence as being false, and despite the gravity of the allegation against a very experienced office holder in insolvency proceedings, he nowhere makes it clear that dishonesty is not alleged. I think these failures are regrettable, and that the nub of Mr Shobbrook's complaint is really a value judgment about the work admittedly undertaken by Howes Percival.
- Some support for that value judgment may admittedly be found in certain comments made by Mr Gibbs in the correspondence, including in particular his letter of 7 March 2013: see the passage quoted in paragraph 36 above. In his evidence, however, Mr Gibbs explained that, even after the decision had been made to use an electronic disclosure platform, the lists provided by Howes Percival were still "useful in discarding relevant documents as part of a "first pass review" and to allow the number of documents to be disclosed to be reduced" (paragraph 15 of his second statement). Even at the most mundane level, it seems obvious to me that there must have been considerable value in conducting a manual review and re-ordering of the contents of the first 167 boxes. This must have fed into the subsequent review for relevance which was carried out by Mr Gibbs and Mr Lewis, and which resulted in a huge reduction in the number of boxes of documents finally supplied to Unified. It may well be that the exercise undertaken by Howes Percival was unduly labour-intensive, and it would have been far more sensible to decide on a combined e-platform for the two sets of proceedings at a much earlier date; but that is not the same as saying the work was valueless, and still less that Mr Smailes somehow misrepresented its nature.
- In addition, I would make the obvious point that the deficiencies in the Liquidators' conduct of disclosure from June to November 2012 were reflected in the order for costs which I made, requiring them to pay all the costs of the respondents' application of 28 June 2012 on the standard basis. I duly considered whether to order the assessment of those costs on the indemnity basis, but decided not to for the reasons briefly stated in paragraph 22 of the November judgment. In the absence of any effective challenge to the factual accuracy of Mr Smailes' evidence, the present attempt to persuade the court to revisit the costs order which it then made is in my judgment doomed to failure. The facts come nowhere near constituting one of the relatively rare cases in which the jurisdiction under CPR 3.1(7) may appropriately be invoked. Instead, the application is to my mind an expensive and unnecessary piece of satellite litigation, of a type which should be firmly discouraged. Furthermore, when I note that the sum of costs claimed by the respondents under the November order amounts to over £179,000, I am left with the distinct impression that the present application tells one more about the reasonableness and proportionality of those costs than it does about whether I was right to order their assessment on the standard basis.
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