Charles Fussell & Co LLP sees 2014 out with its second leading case of the year on procedural law

Both cases engage with the practical difficulties now facing parties and legal practitioners following the decision of the Court of Appeal in Mitchell v. News Group Newspapers Limited [2013] EWCA Civ 1537, as subsequently explained in Denton v. TH White Limited [2014] EWCA Civ 906.

Both cases show that the Court now requires parties to adopt a practical and constructive approach to resolving disputes through litigation, no matter how bad the relations between the parties, and will not reward any opportunistic attempt to exploit procedural difficulties in which a party finds itself.

What are good reasons?

The first case, decided on 15 April 2014, explains what reasons are “good” reasons for needing further time to comply with case management orders. It also serves to show the aggressive approach taken by some parties following the decision in Mitchell and which (it is hoped) will no longer be taken following Denton.

In Kaneria v. Kaneria & ors [2014] EWHC 1165 (Ch), the High Court had to deal with an application for an extension of time for service of the Defence, which was met with fierce opposition and a cross-application to debar the Defendants from defending. We acted for the Defendants.

The case concerned a petition for alleged unfair prejudice in the running of a company brought by a member of the Kaneria family against other members of that family who collectively made up the majority shareholders. There was a preliminary issue in the petition about the extent of the Petitioner’s shareholding: the Petitioner claimed to be entitled to a larger shareholding than shown on the register of members, which would have the effect of increasing the value of his shareholding (and so the value of any order to buy him out) significantly if he succeeded. The Defendants required further time to serve their Defences because their Counsel had unexpectedly become unavailable. The Petitioner’s solicitors took two weeks to respond for a request for an extension of time and then refused it. The Defendants applied to Court for more time – critically, before time for service of the Defence had expired. The hearing, however, took place after the Defendants had already filed and served their Defence.

The Petitioner argued that, following Mitchell, a party seeking further time had to have a “good” reason for doing so and that the scope of such “good” reasons was considerably narrower than previously. The fact that the Defendants’ Counsel was unexpectedly unavailable to draft a defence was no longer a good reason for an extension of time, the application should be refused and the Defendants effectively debarred from defending the petition further. The fact that an application had been made in time for an extension was irrelevant because there was no meaningful distinction to be drawn between applications made in time and those made out of time. Had this argument succeeded, the Defendants faced losing, by default, the whole case.

Nugee J did not accept that argument and extended time. The reasons given by the Defendants were good reasons. In particular, he found that there was a distinction to be drawn between applications made in time and those made out of time. The former represented compliance with the rules and were looked on more favourably; the latter did not, required the indulgence of the Court and was subject to the Mitchell principles. Nugee J explained that the policy of the Court was to encourage co-operation as well as compliance:

“The consistent message from these authorities is that a party who needs more time for a procedural step in existing proceedings should not just ignore the problem but should ask the other side for consent, and if consent is not forthcoming, should make an in-time application for an extension; and conversely that the other side should respond positively and in a spirit of co-operation to reasonable requests for consent rather than “cry foul” and seek to take opportunistic advantage of the other party’s difficulties.”

What do the interests of justice require?

The second case, decided on 12 December 2014, addresses general issues of case management in the context of litigation which the first instance judge, HHJ Mackie QC of the London Mercantile Court, described succinctly as “acrimonious”.

In Walsham Chalet Park Limited (trading as The Dream Lodge Group) v. Tallington Lakes Limited [2014] EWCA Civ 1607, the Court of Appeal has held that the three-stage test set out in Denton is relevant not only to an application for relief from sanction but also to applications to impose such sanctions. The Court must accordingly consider (1) whether the default complained of is serious, (2) whether there is a good reason for the default and (3) all the circumstances of the case, including the effect of the sanction sought.

The background facts were, to say the least, unusual. What should have been an unremarkable commercial dispute between two caravan park owners about the circumstances in which a joint venture agreement had broken down and the legal consequences of that breakdown had been transformed through the efforts of the Defendant, representing itself through a director, into a wide-ranging dispute, including allegations of fraud and forgery. The first instance judge was moved to describe the case as “one of the least manageable I have ever tried to manage”.

To cut a complex procedural history short, the Defendant sought to strike out the Claimant’s case on the basis that disclosure had been given very late and the trial date had been prejudiced. This was notwithstanding that the Defendant was itself in breach of various case management orders, including orders to pay the Claimant’s costs. The Claimant’s difficulties were significant: it was a small company with a seasonal business and no in-house legal department and it was faced with an opponent who had made it clear that it required disclosure of a large number of categories of documents. Its delay in giving disclosure was entirely understandable but, following Mitchell, there were no reasons for it which the Court would accept as good reasons.

The Claimant gave disclosure very late. Nevertheless, the Defendant did nothing about that default until after it had been remedied. The Defendant sought to strike out the Claimant’s case and relied on the facts that (1) the default was serious and (2), following Mitchell, there was no good reason for it. The Defendant concentrated on its application to strike out to the exclusion of seeking to bring the case to trial, even to the extent of refusing to comply with any pre-trial directions until its application was decided. Both the first instance judge and the Court of Appeal refused that application.

The case is of general importance and interest because the Court of Appeal has chosen to emphasise the third stage of the test set out in Denton and, in particular, the need to do justice as between the parties and the parties’ obligation to co-operate to bring a case to trial. The Court of Appeal noted that the Defendant was itself in breach of case management orders, especially an order to pay costs, and had done nothing whatsoever about the Claimant’s delay until after it had already been remedied. Even then, its only approach was to seek to strike out the Claimant’s entire case. The Court was critical of this approach, noting that:

“the defendant’s conduct in applying for a strike-out rather than working constructively towards trial … smacks of the opportunism and lack of co-operation that were roundly criticised by the court in Denton”.

There could no better summary of the Court’s current approach to issues of case management: co-operate constructively or face the consequences.

If you would like to discuss any of the issues raised by this article, please do not hesitate to contact us.